Process to apply for MSME Loan as Announced by Finance Minister
According to the new guideline provided by the government, the investment limit has been revised upwards and an additional criterion of turnover introduced for the MSME loans. Previously, the Micro, Small and Medium Enterprises Act (MSME Act) 2006 defined a micro-unit with the investment of up to Rs 25 lakh, a small enterprise with investment between Rs 25 lakh and Rs 5 crore and a medium one with investment between Rs 5 crore and Rs 10 crore. There was a distinction between the manufacturing and services, so in case of services, the investment limit for micro was up to Rs 10 lakh, for small, the investment cap was Rs 10 lakh to Rs 2 crore and for medium, the limit was Rs 2 crore to Rs 5 crore.
Now the revised definition of MSMEs introduced recently removed the distinction between manufacturing and services. This means a micro firm is one with investment up to Rs 1 crore and turnover less than Rs 5 crore, the small firm has investment up to Rs 10 crore and turnover up to Rs 50 crore and the medium-firm will be one with an investment of up to Rs 20 crore and turnover under Rs 100 crore. This new changes not only help a startup or the already functioning business to grow but it also helps them gain more benefits with greater transparency in the classification. This will also allow the government to verify a company’s turnover using the GST data than the investment in machinery. If you are looking to get an MSME loan, here is a step-by-step guide on how to apply for MSME loan online.
Are you MSME or SME ?
MSME loans are unsecured loans that are offered by banks and NBFCs only if the applicant meets the certain eligibility criteria. MSME loans are defined by Indian Government and RBI, as the loans for business enterprises need support in terms of finance, infrastructure and other areas.
New MSME Definition
The distinction between the manufacturing and services enterprises has been removed by making the investment amount and annual turnover similar for enterprises engaged in both the sectors.
| MSME – Merged Criteria: Investment and Annual Turnover | |||
| Sector/Enterprise Type | Micro Enterprise | Small Enterprise | Medium Enterprise |
| Manufacturing & Services Sector, Both | Investment less than Rs. 1 crore Turnover less than Rs. 5 crore | Investment less than Rs. 10 crore Turnover up to Rs. 50 crore | Investment less than Rs. 20 crore Turnover up to Rs. 100 crore |
Key Takeaways of New MSME Definition introduced in ‘Atmanirbhar Bharat Abhiyan‘ or Self-reliant India Scheme 2020 by Government of India.
- Collateral Free Loans to MSMEs
- MSME Loans worth of Rs. 3 lakh crore
- Moratorium period offered is 12 months
- Manufacturing and Service MSMEs shall be considered as same entities
- Repayment Tenure of 48 months
- 100% Credit Guarantee
- To benefit approx. 45 lakh units
- Interest Rate as low as 8.25%
What are the Documents required to apply for the Loan ?
Documents Required for MSME Loan
A. The existing units are expected to approach the bank with the following indicative documents:
A.1 For Existing Units seeking WC facilities:
- Last 3 years audited balance sheet with notes on account & annexure
- Last 3 years audited profit & loss statement with notes on accounts & annexure
- Last 3 years IT returns
- Last 3 years balance sheet & profit & loss statement of associate / sister concerns
- CMA data
- Order book position / contracts / proof of demand
- Last GST assessment order
- Statutory clearance certificate
- Lead Bank assessment note in case of consortium finance.
- Details of Associate / Sister / Group Concerns with names, bankers, credit facilities enjoyed, present status etc.
- Details of Collaterals wherever applicable.
A.2 Additional documents required in case of take over account:
- NOC / status of the account
- Credit report from the existing bankers
- Statement of account for last 1 year.
A.3 Additional documents required for Term Loan / LC for capital goods application, if they are not included in project report:
- Cash flow statement for entire repayment schedule
- Fund flow statement for entire repayment schedule.
- Profitability projections and assumptions for entire repayment period
- Break-even analysis.
- IRR working
- DSCR working
- CA certificate for promoter's contribution
- Project Report covering:
a) Details of cost of machinery, suppliers of machinery
b) Quotations / proforma invoices from suppliers
c) Installed capacity calculation
d) Raw material details & their availability
e) Market survey: viability reports from market, reports from associations
f) Project implementation schedule.
g)Status of various clearances required.
A.4 Additional documents required in case of factory building:
- Building approval plan
- Estimate from Architect
- Statutory clearances: Environment, pollution clearance, and other applicable clearances.
- Power & water sanction proof,
- Any other clearances like explosive license etc wherever applicable to different projects.
A.5 Additional documents required for raw material LC:
- Pattern of purchase
- Quantum & Value of import and domestic purchases.
- Import license
- Percentage of Total Purchase under LC
- Lead-time required
- DA period in case of DA LC
A.6 Additional details required in case of Bank Guarantee:
- Details of existing guarantees & facilities
- Bid bond / security deposit Details
B. In case of New Projects seeking TL & WC facilities Complete Project Report to be submitted including the following indicative documents by the Entrepreneurs:
- Projected Balance Sheet for the entire repayment period,
- Projected P & L Account for the entire repayment period,
- Presumptions made in Projected Profitability Estimates
- Projected Cash Flow Statement for the entire repayment period,
- Projected Fund Flow Statement for the entire repayment period,
- Break Even Analysis
- DSCR Computation for the entire repayment period, with Average DSCR Calculation,
- IRR Computation,
- CA certificate for promoter's contribution
- IT return & personal Balance Sheet of the promoter's & guarantors
- Bio data of Promoter's / Directors
- Details of cost of machinery viz Name of Machine, Machine Capacity, Supplier of
machinery, Quoted Value etc. - Estimates of Construction by Architect / Chartered Engineer.
- Copies of Various Basic / Statutory Approvals to establish the unit & to run the activity.
- Installed capacity calculation
- Raw material details & their availability
- Market survey: viability reports from market, reports from associations
- Project implementation schedule.
- Market Demand & Market Arrangements
- Details of Collaterals wherever applicable.
Process to Apply
- Complete the upto date GST Compliance, GST Return Filings, Last 3 Years Income Tax Filing for your Business (At least upto March 2020)
- Contact your Bank Manager or Relationship Manager in which you already are holding Account for your Business.
- Ask for the Appointment for Application for Loan under MSME
- Check on your Banks Website or Your Internet Banking Login Dashboard for the Loan Application.
- Fill this Form for Application of Loan
- Prepare complete set of documents as given above and visit your Bank for further processing along with Application form.
- You should not be a defaulter of any loan previously and must have a satisfactory cibil score to be eligible for the loan.
- Keep in constant touch with your banker.
