What are MSME loans?

MSME loans are unsecured loans offered by several financial institutions to help entrepreneurs meet various business-related expenses. As per the Indian government and RBI, these loans are for certain business enterprises that fall under these categories:

Is any kind of security or collateral required for applying for an MSME loan?

Most MSME loans do not require any kind of security or collateral except for the term loan for buying commercial vehicles and construction equipment. In this type of loan, the vehicle or the construction equipment needs to be pledged as security.

What is the formula used for calculating the EMI of an MSME loan?

The formula used for calculating the EMI on an MSME loan is: EMI = P x r x (1 + r) n / ((1 + r) n – 1). Here P denotes the principal loan amount, r is the interest rate, and n is the tenure. Most EMI calculators are programmed with this formula and calculate the EMI based on the principal amount, the interest rate, and the loan’s tenure.

MSME is the collective term for micro, medium and small enterprises, and there is a separate ministry for MSMEs within the government of India. MSMEs not only generate employment but account for 45% of the country’s manufacturing facilities and contribute 8% of the gross domestic Product (GDP) of the country. MSMEs have large export volumes and contribute 40% of the exports of the nation to other countries. MSMEs came into being with the formulation of the MSMED (micro, medium and small enterprises development act in 2006. Until then, MSMEs were mostly known as small and medium-scale industries, and the criteria for classifying industries into small and medium were also not clearly defined.

Aside from an MSME loan, financial institutions also offer these loans under several government schemes like:

• Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
• Prime Minister’s Employment Generation Programme (PMEGP)
• Micro Unit Development and Refinance Agency (MUDRA Loan)

MSME loans come with specific eligibility criteria, and business owners must meet all terms mentioned to avail of the benefits. Tata Capital offers MSME loans of up to Rs. 5cr to help enterprises meet their immediate funding requirements. It comes with minimum eligibility and documentation requirements to simplify loan processing. This loan is available at affordable interest rates and can be repaid over a flexible tenor. With Tata Capital, business can opt to part-prepay or foreclose the loan account before the tenor ends at nominal charges.

Apply for Tata Capital MSME loan for fast approval and disbursal. Ideal for small businesses seeking flexible repayment and low-interest rates. Tata Capital offers unsecured MSME loans to startup owners, women entrepreneurs and small business owners to meet their business requirements

MSME/SME loans are special finance products offered to micro, small and medium enterprises. MSMEs comprise small businesses, traders, start-ups, small manufacturing units, cottage industries, women entrepreneurs and more. Generally speaking, it’s difficult for MSMEs to avail business loans as these enterprises mostly do not have properties that they can pledge as collateral. This is where MSME loans come into the picture. Unlike business loans that are secured, MSME loans are unsecured, meaning loan applicants can borrow without the need for collateral. Since MSME loans are unsecured, the minimum eligibility requirements for these loans are relaxed, making them easily available to all. Here, in this guide, we take a look at the MSME loans offered by Tata Capital.