What are the benefits of an MSME Loan?

There is no denying that a significant part of the employment lies in the small business and retail sectors, which laid the foundation of the MSME sector in India. MSME is nothing but an acronym for Micro, Small, and Medium Enterprises. In the Indian market, the MSME sector plays a critical role in employment generation and GDP share.

You will be amused to know that the MSME sector contributes around 40% of the GDP of India, making the MSME sector the economic spine of India. The MSME sector continually makes a notable contribution to the growth of our country with its innovative and creative business ideas.

The Government of India defines MSME in the following ways:

  • If the investment of any firm in plant and machinery is up to 1 crore and annual turnover does not exceed 5 crores, then it is considered a Microenterprise.
  • If the investment in plant and machinery does not exceed 10 crore and annual turnover is up to 50 crore, then it is taken as a Small enterprise.
  • However, if the investment in plant and machinery is up to 50 crore and annual turnover does not exceed 250 crores, then it is considered a Medium Enterprise.

What is an MSME loan?

As the name suggests, MSME loans are business loans that are specifically made available to micro, small and medium enterprises (MSME). These loans help entrepreneurs start a new business, meet daily expenses, or diversify their existing business.

MSME Loan is an unsecured loan. It simply means that it is unnecessary to provide collateral as security while getting a loan. On top of this, no tedious paperwork is mandatory for availing MSME loans. However, you must meet the defined eligibility requirements while applying for an MSME Loan.

Lately, the government is running various loan schemes for the MSME sector. One popular MSME loan scheme is Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). This scheme is curated by the Government of India, SIDBI, and the Ministry of Finance to provide collateral-free MSME loans.

As per this scheme, the lender lends money solely based on project viability. If the borrower fails to make the payment, then Central Guarantee Scheme (CGS) recovers the loss amount up to 85% of the remaining amount not paid.

Benefits of MSME loan

  • Easily accessible: 

The most challenging task when starting a business is arranging seed financing. Later on, while expanding and flourishing, tapping venture funds becomes another obstacle. It is not easy to access the funds to run a business.

However, MSME loans resolve this issue. MSME loans are easily accessible without having to deal with a hassle process. Documentation requirement is low in the MSME loan schemes. In addition, the MSME loan amount disbursement is quick.

  • Lower Interest Rates: 

When the subject is about managing the finances of your small business, then each penny you spend makes a lot of difference. Therefore, you certainly would not want to spend a hefty amount only on making interest payments. That is where MSME loans come to the rescue. MSME loans come at a lower rate of interest that makes them a lucrative source of finance.

  • Free from any collateral: 

To avail of the loans from banks, the major obstacle that small business owners face is collateral demand. The banks demand security in place of loan disbursed. However, the MSME loans are totally free from any collateral demand.

It means that you do not have to pledge any land or holdings as security to avail of the loan. The purpose of the MSME loans is to push the small businesses and let them grow. Therefore, the banks that lend MSME loans do not demand any collateral from small business owners.

  • Lends flexibility: 

MSME loans are for meeting the short-term requirements. Therefore, the loans are provided since there is no long-term commitment. Having no long-term commitment, in turn, means that you can manage your working capital and cash flow effectively and allocate the resources in the best possible way. 

Apart from this, availing of MSME loans also allows entrepreneurs to keep the reins of management control in their hands, as MSME loans are for the short-term, so they do not affect the entrepreneur’s capital structure of the firm.


MSME loans are a credible source of finance for small enterprises. A hassle-free process, no collateral required, and easily accessible; these all features make the MSME loans much better than any other external financing. So, do not be apprehensive; do a quick MSME loan apply online search on the web, go through the process, and kick-start your business today!

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Christophe Rude

Christophe Rude

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