MSME Startup Loan – Different Government Schemes, Documents Needed, And Eligibility Criteria

There are more than 39,000 startups in the Indian Economy at present that approach numerous private institutions and individuals to get access to credit. It is a challenging task to get financing when the business is only an idea or is in the beginning phase. Moreover, the Micro, Small, and Medium Enterprises (MSME) area in India has restricted admittance to formal credit which is the reason the Government of India chose to carry out new plans to provide MSME startup loans.

The Small Industries Development Bank of India (SIDBI) has additionally started providing loans to startups and MSMEs straightforwardly as opposed to channelizing it through banks. The financing costs on these credits are quite lower than the ones presented by banks. However, before understanding MSME startup loans, you need to understand what are MSMEs and what criteria a business should have to be called an MSME.

What are MSMEs?

According to section 7 of the Micro, small, and medium Enterprises Development Act, 2006 the Central Government informed the accompanying standards for characterization of micro, small and medium undertakings (“MSME”) through a notice on the first of June, 2020:

(i) a micro enterprise is an enterprise in which the total investment in factories, machineries, or Equipment is not more than 1 crore Indian rupee and turnover is not surpassing five crore rupees

(ii) a small enterprise is an enterprise in which the total investment in factories, machineries, or Equipment is not more than 10 crore Indian rupees and turnover is not surpassing fifty crore rupees;

(iii) a medium is an enterprise in which the total investment in factories, machineries, or Equipment is not more than 50 crore Indian rupees and turnover is not surpassing 250 crore rupees.

MSME Startup Loans

MSMEs and startups can avail of a Startup business loan from a bank or a monetary body to raise money to begin their very own business or extend their present business. The rate of interest charged by the bank depends from lender to lender and will rely upon the credit sum benefited by you and the term for which the loan has been taken.

Schemes For MSME Startup Loans

Here are some schemes started by the government which provide loans to startups:

1. Pradhan Mantri Mudra Yojana (PMMY): This scheme was launched in 2015 with the motto of ‘funding the unfunded. This scheme provides loans of up to  Rs 10,00,000  to various MSMEs and startups via government banks or the public sector.
2. Credit Guarantee Scheme: Under this scheme, collateral-free loans of up to 10 lakhs are provided to Micro and small enterprises. Primary security or mortgage of land and building associated with the business can be provided by MSMEs for the requirement of loans greater than 10 lakhs.
3. Bank Credit Facilitation Scheme: The National Small Industries Corporation (NSIC)  has signed an MoU with many government banks as well as private banks to provide efficient and fast credits to MSMEs.
4. Standup India: Started in April 2016 and headed by SIDBI, this plan stretches out credits to businesses in services, manufacturing, or trading. Under this plan, credits ranging between Rs.10 lakh and Rs.1 crore can be lent. The term for repayment of advances taken under this plan is seven years.
5. Sustainable Finance Scheme: This scheme is also headed by SIDBI and provides loans to businesses dealing with green energy, renewable energy, technology hardware, and non-renewable energy.
6. PSB Loans in 59 minutes: Launched by SIDBI this unique scheme provides you with a loan in 59 minutes. Disbursal of the loan takes 8 to 9 days and the interest rate charged depends on the business, loan term, and the credit score of the owner.

Document Required to Avail A MSME Start-up Loan

The following documents are required to avail of the loan:

• 2 copies of passport-size photographs
• Any of these proofs of Identity: a PAN Card, Passport, Aadhaar, Voter ID card, or Driving License
• Any of these Address Proofs: Passport, Driving License, Aadhaar, Phone Bill for postpaid networks, Voter ID
• Any of these Age Proofs: Passport, PAN 
• Bank Statement for the previous 6 months
• IT Returns or Salary chip as proof of Income
• Any of these Signature Proofs: signature verified by the bank, PAN, Passport
• IFSC Code Proofs: a canceled or scanned cheque and a copy of the passbook’s front page of the same bank account

Eligibility Criteria To Apply For MSME Start-up Loans

The eligibility criteria for MSME startup loans differ for each lender. However, the basic criteria are as follows:

• The applicant should be an Indian citizen.
• Age should be between 24 years to 70 years and should not exceed 70 years during the loan repayment tenure
• Business must be running for the past three years.
• CIBIL score must be greater than 700.
• The company must be not in total debt or any other heavy loan.

Things To Remember When Applying For MSME Start-up Loans

Remember to keep in mind these when you apply for an MSME startup loan:

• Make a fresh and detailed strategy for your business.
• State clearly how you expect to utilize the money you receive in your strategy.
• Sum up the targets and objectives of the business alongside a chart that will feature the likely returns and development of your business venture.
• Give a reasonable estimate of the funds.

Few Final Words

The sector of MSMEs in India has outrageous potential as it as of now amounts to 28 percent of the nation’s GDP. Yet, there is an earnest requirement for a reasonable monetary credit system. Until the credit holes are filled, the Indian business people would remain immobilized with high credit rates and low disbursal accessibility. The government has launched schemes and plans to fill these gaps for monetary rebuilding and its execution throughout the country. Entrepreneurs need to avail full benefit of these schemes and flourish their businesses.