MSME Loan: Features, Eligibility, Interest Rates

byRahul TadiparthiLast Updated: March 15, 2024
MSME Loan: Features, Eligibility, Interest Rates

MSME loan or Micro, Small and Medium Enterprise loan, is a type of loan meant for entrepreneurs and businessmen. A number of banks and lenders in India offer such loans to customers that enable them to gain access to working capital that serves various purposes in running a business. If you are an entrepreneur or planning to be one and want to know more about an MSME business loan, this blog is for you.

What is an MSME Loan?

The MSME full form in banking is — Micro, Small and Medium Enterprise loan. The criteria to avail of an MSME loan is based on the investment and annual turnover of the enterprise that the

loan is being sought for. The investment limit that identifies with an MSME unit has been increased by the Government of India, w.e.f. 13th May, 2020. This makes it possible for more enterprises to avail of the MSME loan scheme. 

In order to avail of an MSME loan, there are certain criteria that an enterprise need to fulfil. The different categories under which these manufacturing and servicing enterprises fall are classified as follows:

  • Micro: A firm seeking an MSME loan is said to be a micro firm if its investment does not exceed INR 1 crore and turnover does not exceed INR 5 crores. 
  • Small: A firm seeking an MSME loan is said to be a small firm if its investment does not exceed INR 10 crores and turnover does not exceed INR 50 crores. 
  • Medium: A firm seeking an MSME loan is said to be a medium firm if its investment does not exceed INR 20 crores and turnover does not exceed INR 100 crores. 

Features of an MSME Loan

The MSME loan helps individuals, startups, business owners, women entrepreneurs, self-employed professionals and people belonging to minority categories to avail of loans to run various aspects of their businesses. Such a loan can also be availed of by Private or Public Limited Companies, Sole Proprietorships, Partnership Firms and Limited Liability Partnerships (LLPs) that are engaged in services, trading and manufacturing sectors.

The purpose of an MSME loan can be to serve any of the below-mentioned business functions:

  • To start a new company/business or to expand one that already exists.
  • Purchasing of plant and machinery that includes testing machines, lab equipment, electrical devices, spare parts, furniture and other items of infrastructure.
  • Construction of building spaces or similar structures and the acquisition of commercial properties or a piece of land to start a factory.
  • To launch a new product range.
  • To pay the suppliers by bill discounting.
  • In order to function as a working capital fulfilling requirements, such as paying employee salaries, purchasing raw materials or goods, stocking up the inventory, for marketing and advertising purposes, etc.
  • Buying vehicles that would aid in the smooth functioning of the business.
  • Any additional funding assistance required to run the business

Who is Eligible for an MSME Loan?

In order to be eligible for an MSME loan, the applicant needs to fulfill certain eligibility criteria. These criteria vary from bank to bank and also differ within the different types of schemes offered under the MSME loan. The general MSME criteria that an enterprise needs for MSME loan eligibility to be fulfilled, are as follows: 

Some other factors that determine the eligibility for an MSME loan are listed below:

  • The loan applicant needs to be at a minimum age of 21 years at the time of application and a maximum age of 65 years at the time of loan maturity.
  • The minimum business vintage should be of 1 year.
  • The annual business turnover should be as specified by the bank providing the loan.
  • The business should have a good repayment history and financial stability.
  • The business should not have a history of loan default with any financial institution.
  • The lenders will also consider a decent credit score and creditworthiness of the applicant in order to approve the loan application.

What is the MSME Loan Interest Rate

MSME loan interest rate differs from bank to bank. If you need accurated information as per your eligibility criteria, contact banks and compare their interset rate to choose the best one for you.

How to Apply for an MSME Loan?

It is important to know about the MSME limit of a particular bank and other MSME loan details before applying for a loan. There are two ways in which you can apply for an MSME loan:

  • If you have access to an online facility, you may fill up the loan application form, provide all the required details and documentation, and submit the application on the website.
  • You can visit the nearest bank branch and request a physical application form. 


The MSME loan full form is Micro, Small and Medium Enterprise loan. Securing an MSME loan is an easy way to help budding enterprises to be able to do business and expand by seeking more funds at affordable interest rates. These loans are considered unsecured loans and thus do not require any kind of security or collateral from the applicant business entity. Some banks offering the MSME loan, in fact, also offer subsidies making it even more convenient for borrowers.

Does an MSME loan require collateral?
As per the guidelines issued by the Reserve Bank of India, all banks have been issued a mandate to offer MSME loans of up to INR 10 lakhs without the need for any collateral. However, some banks also increase this limit to INR 25 lakhs at their own discretion.
Do I need to have a credit rating as an MSME borrower?
Although it is not mandatory for an MSME borrower to have a credit rating, having one may aid in credit pricing that will enable you to get better interest rates and lower processing charges.
What is the smallest size of a firm that can avail of an MSME loan?
The smallest firm that can seek an MSME loan is a micro firm where the investment does not exceed INR 1 crore and turnover does not exceed INR 5 crores.

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