What is Business Loan for MSME?

Micros Small and Medium Enterprises are also known as MSME are those businesses that fall under this category. For the upkeep of their businesses, additional financial liquidity is required. To bridge the gap, many financial institutions and banks offer Business Loans for MSMEs.

What is a Business Loan for MSMEs?

It is a loan obtainable by any MSME business to expand and purchase their business. It would entail purchasing machinery and equipment or raw materials, meeting working capital requirements, investment in fixed assets, payment of rent, salaries and other daily or monthly expenses, management of cash flows and any other financial provision for operational purpose. These loans are offered at exceptional competent interest rates and flexible tenures. However, every bank offering Business Loan for MSMEs will curate their respective rates. With a simplified SME Loan meaning, the enterprises eligible for this type of loan scheme are Partnerships, Sole Proprietorship, Manufacturing units or Service based micro and small enterprises. However, do note if your business falls under the retail trader segment, training or educational institutions, agricultural and self-help groups you are not eligible or entitled to apply for a Business Loan for MSME.

Back in May 2020, the Government of India has altered the definition of MSME. The new definition of MSME is now uniform for both Manufacturing and Services Enterprises. The criterion has changed from investment to investment and annual turnover. The limit for each segment is also increased that means more enterprises can now avail the MSME Scheme and use the Business Loan for MSME meaning as elaborated below.

Manufacturing and Services Enterprises

  • Micro: The investment value should not exceed Rs. 1 crore and the annual turnover should not exceed Rs. 5 crores.

  • Small: The investment amount should not exceed Rs. 10 crores, and the annual turnover should not exceed Rs. 50 crore.

  • Medium: The investment value should not exceed Rs. 20 crore and the annual turnover does not exceed Rs. 100 crore.

Depending on the category your business falls under, you can benefit from a Business Loan for MSME, which will be deposited into your business bank account or Current Account on approval. What is the Business Loan for MSME scheme? Banks offer interest rates as low as 7.65% with the loan sanction amount that commences as low as Rs. 50,000 and repayment tenure up to 15 years. But do keep in mind that every bank or financial institution curates their interest rates, tenures and loan sanction amounts in a different and specific manner.

We’ve explained to you what is a Business Loan for MSME; now we move on to the features and benefits of a Business Loan for MSME.

Features and Benefits of Business Loans for MSME.

Through a Business Loan for MSME, micro small and medium business owners can use the funds effectively to expand their business or even set up an additional arm of their current business. Below are some of the features and benefits of a Business Loan for MSMEs:

  • A Business Loan for MSMEs facilitates extensive credit flow in the MSME sector.

  • With Business Loan for MSMEs, businesses can upgrade their technology to meet their small business sector requirements.

  • Business Loan for MSMEs offer a comprehensive development competence for the small scale industries through skill development and training packages.

  • Business Loan for MSMEs are offered to all borrowers associated with small scale industries such as Sole Proprietorship Firms, Partnership Firms, Private Limited Companies, and Public Limited Companies. Further, Manufacturing or service-based micro and small enterprises are eligible excluding Retail traders, educational institutions, training institutions, agriculture & Self Help Groups

  • The tenure of a Business Loan for MSME is for a maximum period of 15 years.

  • Business Loan for MSMEs are offered as secured and unsecured loans. The choice depends on the borrower his repayment capacity and the requisite terms and conditions of the bank.

Usage of Business Loan for MSMEs

Business Loan for MSMEs can be used for a multitude of purposes such as:

  • To meet working capital requirements

  • Enhance the business

  • New and innovative business expansion

  • Management of Business Cash Flow

  • Installation of new equipment and machinery

  • Procurement of business tools, vehicles and other fixed assets

  • Development of inventory, such as raw materials or stock.

With an extensive explanation of what is Business Loan for MSMEs, it is a straightforward and effortless process to obtain a Business Loan for MSMEs. To apply for a Business Loan for MSMEs or Business Loan for MSME, click here.

Read more on how to apply for a Business Loan for MSME here.

​​​​​​​*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. All loans for MSMEs, at the sole discretion of HDFC Bank limited. Loan disbursal is subject to documentation and verification as per Banks requirement.

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