An MSME loan or an SME loan is a credit facility extended by banks, small finance banks, and non-bank finance companies such as IIFL Finance to micro, small, and medium enterprises.
MSME loans are either unsecured or secured loans given by financial institutions to meet various expenses to businesses as well as individuals, sole proprietors and partnership firms. Startups are also eligible for MSME loans.
These loans can be availed for a wide range of purposes, including for investments in plant and machinery, buying inventory, and making payments to staff or vendors.
Main Features of MSME Loan
Loan amount: MSME loans can be of varying amounts depending on the requirement of businesses. Most banks and NBFCs provide loans starting from Rs. 50,000. The loans can go up to Rs. 10 crore or even higher
No collateral: Lenders do not seek any collateral for unsecured MSME loans, and hence small business owners don’t have to worry about providing any security. Secured loans, however, do require a collateral
Flexible repayment: Banks and non-bank finance companies provide flexible repayment options for the repayment of MSME loans. The tenure is designed based on the cash flows and other receivables. Usually, the tenure ranges from one to five years but it can be mutually decided by the lender and borrowers. There is also an option for part-prepayment.
Digital application: The MSME loan can be applied for online, cutting down on the hassle of paperwork, which often results in delays in availing loans. Most lenders provide an end-to-end digital application process
Approval process: Once all the documents are submitted, lenders undertake a verification exercise. Post that, the MSME loan amount is disbursed within three-four days of the application
Processing fees: Borrowers may have to pay charges such as processing fees, which usually range between 2-3% of the loan amount. There are no other hidden charges levied on borrowers.
Interest Rates: It has a lower rate of interest starting from 7.65% per annum. However it varies from lender to lender.