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Whether you are seeking an MSME loan for your new business or the existing one, you need to analyse your business requirements. Evaluate what your needs are and what is the investment required. There are government MSME schemes and bank loans than can be availed based on your business requirement. The question is – how to apply for a MSME loan?

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For example, if you want to buy a new machine, determine why you need a machine and what is its cost. Once you have narrowed down on the cost of investment you want to make, you can check your eligibility.

The MSME loan application process can get complex if not done in the right manner with the correct documents. Factors like loan interest rate, effective interest rate, loan tenure, type of MSME loans, should also be considered before applying for a loan.

In this article, we will discuss what is a MSME loan, loan eligibility criteria, documents required, loan application process, and more, to enable you to get business loans when you need it most.

What is a MSME loan?

MSME loan is a monetary/credit option offered by banks and non-banking financial companies (NBFCs) to MSME businesses to grow their business and meet various business needs.

Loans can be offered by private banks and NBFC and the government (i.e., government MSME loan schemes). These loans can be general loans or specific loans (i.e., working capital loans, equipment machinery loans, commercial vehicle loans, etc.) and can be used accordingly.

Today, the loan application system is usually online, which streamlines the process and makes it quick, transparent, and less complex. It also allows borrowers to compare loans, get relevant information, and upload documents digitally, making it easier for banks to verify documents, check borrower’s creditworthiness, and reduce risks when sanctioning loans.

Who is eligible for an MSME loan?

There are some common guidelines as defined by the RBI for loan eligibility. While these guidelines must be adhered by, every bank and/or NBFC may have its own criteria for eligibility for MSME loan, e.g., nationality and age can be an eligibility criterion.

For instance, if you are availing MSME business loans through Tata nexarc, you must be within 23-65 years, with your business running for at least 2 years (business vintage).

Here are some of the important factors that determine your eligibility.

  • Business revenue
  • Business history
  • Repayment capacity
  • Tax payment history
  • Existing credit facilities

Additionally, your company should not be falling under blacklisted category. Also, it is advisable to check your credit score. Score of 700 and above is considered as good for MSME loan application.

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Note: Each bank and NBFC may have their eligibility criteria and it is recommended to find it out by visiting the branch or website.

Where can I apply for MSME loan?

In order to apply for a business loan, find out about available MSME loan schemes that are applicable to you. Also, it is important to learn about each bank’s interest rate on the MSME loan. You can gather this information by visiting nearby banks and NBFCs.

Alternatively, you can also log on to their websites and fill a form. Compare various bank’s interest rates, period of repayment, eligibility criteria and other applicable conditions. Calculate EMI and narrow down on the schemes and bank that suits you the most.

What are the documents required for MSME loan?

Requirements of documents change depending on the bank or NBFC and type of MSME loan scheme you are opting for. It is advisable to get in touch with your bank for an exhaustive list of documents. Also, it is best to prepare a plan on how you are going to utilise the loan amount.

Here is a list of common documents that you may require for applying to an MSME loan.

  • Copy of Udyam registration certificate
  • Company’s bank statement for last 6-12 months
  • Balance sheet copies for last 2 years
  • Company’s PAN card
  • Business owner’s PAN card copy
  • Copy of the partnership deed in case of partnership firm
  • Sales tax documents
  • Municipal tax documents

Once you finalise on the lender, make a list of all the required documents so that you do not miss out on anything.

How to apply for MSME loan?

The loan application process remains the same whether you apply offline or online. Online makes the process quick transparent, and convenient.

  • Shortlist at least three banks/NBFCs to apply for an MSME loan depending on factors such as interest rate, repayment period, EMI, etc.
  • View the Loans tab on the website (when applying one) or connect with the Loans department agent (for offline application)
  • Collect and duly fill in the loan application form (Note: You may also collect the MSME application form from the branch/online)
  • Attach all the documents required
  • Pay processing fees and documentation charges along with the application (optional)
  • Re-check the details provided, loan type, tenure, EMI to be paid, etc.
  • Submit the application and wait to hear back from the bank on the status of your loan (i.e., approval/rejection and disbursal)

How to apply for MSME loan in 59 minutes

PSBLoansin59Minutes is initiative taken by public and private banks and NBFCs for easing the MSME loan application process. This portal assures acknowledgement towards the application within an hour’s time.

However, it is important to note that the actual time for disbursement after in-principal approval varies from bank to bank and also depends upon documentation. Here is how existing companies can apply for an MSME loan through the portal:

  • Log on to the PSBLoansin59Minutes
  • Register by entering your name, email id and mobile number
  • Create password for logging in later
  • Select the type of loan you want
  • Choose the Business loan option
  • Provide details such as GST, Income tax returns (ITR), bank statement, etc.
  • Select lending bank or NBFC and loan scheme
  • Wait to receive in principal approval/rejection in within 59 minutes on your email id

If you are looking for quick loan offers, consider applying for collateral-free loans through Tata nexarc. The application process is done online and you can get loan offers within as less as 5 minutes.

Which bank is best for MSME loan?

Just because a particular bank is offering MSME loan at lower interest rate does not make it a best. You need to consider various other aspects such as other fees and charges involved, repayment period, EMI, sanctioned loan amount, etc. Take an informed decision.

Some of the private and public sector banks banks you can consider for MSME loan application are: State Bank of India, Allahabad Bank, IDBI Bank, Punjab National Bank, Indian Bank, UCO Bank, HDFC Bank, ICICI Bank, Axis Bank among others.

Closing remarks: Tips for applying for MSME loan

Here are some tips for you to increase your chances of quick loan approval.

  • Make a proper business plan: Substantiating your MSME loan application with a proper plan increases your chances of getting quick approval. You can include details such as purpose of the loan, repayment plan, expected return on investment, etc.
  • Improve your credit score: You can improve your credit score by paying all expenses on time. Healthy credit score helps to get loan approval faster.
  • Pay your taxes timely: Loan application need to be accompanied with documents such as ITR and GST returns. Hence, always pay your taxes on time. Apart from other details, it reveals that you are not a defaulter, increasing your chances of getting loan faster.