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Learn what an MSME loan is and how it compares with a business loan

Summary: Are you wondering what an MSME loan is? In this post, learn about this type of loan and how it differs from business loans. Also, get insights into MSME business loan types, eligible enterprises, and how to apply.

06 Sep 2023 by Team FinFIRST
What is an MSME loan


MSMEs (micro, small, and medium enterprises) play an important role in India's economic growth. The Government provides MSME loans to assist MSMEs in growing and succeeding. Small business owners find these loans attractive because they offer low-interest rates and flexible repayment options. In this guide, we will examine MSME loans in detail and how they differ from other business loans.

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What is an MSME loan?
 

It is an unsecured loan that banks offer start-ups and micro, small, and medium-sized business owners. Examples of such businesses include departmental stores, restaurants, kirana stores, salons, stationery stores, clothing stores, hardware stores, and small factories.

The simple reason why small businesses should avail of business loans like this is to operate smoothly and expand despite a lack of funding. MSME business loans are for a short period of time, and banks offer flexible repayment options. These loans and their eligibility requirements are different from traditional business loans.

If you are self-employed or have a business, you can get a collateral-free IDFC FIRST Bank Business Loan.

Categories of MSME loans
 

The Government of India has divided MSMEs into two broad categories – manufacturing enterprises and service enterprises.

Category

Micro-enterprise

Small enterprise

Medium-sized enterprise

Manufacturing-based and service-based enterprise

Investment is below Rs 1 crore, and turnover is below Rs 5 crores

Investment is below Rs 10 crores, and turnover is below Rs 50 crores

Investment is below Rs 20 crores, and turnover is below Rs 100 crores

 

What is the purpose of an MSME business loan?
 

Small businesses can avail of an MSME business loan for the following purposes –

  • Meeting the need for working capital
  • Improving the company's operational efficiency
  • Market expansion to new and more profitable businesses
  • Getting cashflow for a business
  • Acquiring new equipment and machinery
  • Purchasing properties, vehicles, and other fixed assets for the business
  • Getting raw materials or stock inventories

What is a business loan?

A business loan is an amount a company or a business owner borrows to meet various costs, such as launching new products or services, buying new equipment, increasing inventories, renting more properties for business, or hiring new employees.

Business loans for sole proprietorship businesses (including business loans for women) are crucial to sustain their operations. These businesses may also apply for home equity lines of credit. Owners of these businesses have the option of borrowing money from a bank.

MSME vs business loan – which one to choose?

The key differences between MSME loans and business loans are outlined in the table below –

MSME loan

Business loan

Ideal for small businesses that seek funding for stability or to buy new machinery, restock raw materials, or add to inventory

Generally available for market expansion, implementing new business strategies, or opening new branches

Eligibility requires a turnover cap of at least Rs 5 crores for micro, Rs 50 crores for small, and Rs 100 crores for medium enterprises

This loan is for non-individuals or entrepreneurs with a minimum turnover of Rs 1 crore 

Generally, there are no requirements for collateral to get an MSME loan

Most business loans have no collateral requirements

Tenures for MSME loans extend over 60 months

Tenures for business loans are up to 48 months

The Risk Asset Acceptance Criteria (RAAC) interest rates for an IDFC FIRST Bank MSME unsecured loan range from 21.60-27.60% p.a. For a secured loan, the range is 14.60-16.60% p.a.

Interest rates for business loans from IDFC FIRST Bank start at 15% p.a.

 

Also read - How technology is helping India’s start-ups & small businesses lift off

Are you ready to grow your business? 
 

Now that you have understood what an MSME loan is and how it works, it can be a game-changer to help you grow your business. You can get a flexible loan from IDFC FIRST Bank up to Rs 1 crore for your company. You can also get a loan up to Rs 50 lakhs based on your current account statement or GST returns with an interest rate starting at 15% p.a. 

Apply online or call the customer care hotline at 1800-10-888 for more details.

 

 

 

 

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.idfcfirstbank.com for latest updates.

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