An MSME loan (also known as an SME loan) is a form of business finance provided to micro, small and medium enterprises to support a range of operational and growth-related requirements. These may include working capital needs, the purchase of machinery or equipment, business expansion, inventory funding, or addressing short-term cash flow gaps. MSME loans are offered by banks and non-banking financial companies (NBFCs) as both secured and collateral-free facilities. They are also supported by various Government of India initiatives aimed at improving access to credit for the MSME sector, which plays a significant role in the country's economic growth and employment generation.
This guide explains the key features of MSME loans, the revised MSME classification criteria applicable from 2025, eligibility requirements and documentation, the different types of MSME financing available, and the government-backed schemes that support them. It also covers interest rates and related charges, the method used to calculate EMIs, and the step-by-step process for applying for an MSME loan online.
Latest MSME investment and turnover limits
The Union Budget 2025 revised the MSME classification framework by increasing the investment limits by 2.5 times and the turnover limits by 2 times. The updated thresholds are as follows:
Enterprise type | Investment limit | Turnover limit |
Micro enterprise | Up to Rs. 2.5 crore (revised from Rs. 1 crore) | Up to Rs. 10 crore (revised from Rs. 5 crore) |
Small enterprise | Up to Rs. 25 crore (revised from Rs. 10 crore) | Up to Rs. 100 crore (revised from Rs. 50 crore) |
Medium enterprise | Up to Rs. 125 crore (revised from Rs. 50 crore) | Up to Rs. 500 crore (revised from Rs. 250 crore) |
Additional MSME measures announced for 2025
- Doubling of the credit guarantee cover for micro and small enterprises from Rs. 5 crore to Rs. 10 crore.
- Introduction of customised credit cards for registered micro enterprises.
- Expansion of the fund-of-funds programme and term-loan support for first-time entrepreneurs and women entrepreneurs.
Features of MSME Loans
Key features of MSME loans include:
- No Collateral Needed: Many lenders provide unsecured loans, so businesses don’t have to pledge assets—ideal for startups and small enterprises.
- Simple Documentation: The application requires only basic documents, saving time and reducing hassle for business owners.
- Fast Disbursal: Loans are approved and released quickly, helping businesses access funds when they need them most.
- Competitive Interest Rates: MSME loans generally offer lower and more affordable interest rates compared to other credit options.
- Flexible Repayment Plans: Businesses can choose repayment schedules that match their cash flow, including easy EMIs.
- Varied Loan Amounts: Funding is available in different amounts to meet the specific needs of small and medium enterprises.
- Government Support: Many schemes provide guarantees, interest subsidies, and easier access to finance for MSMEs.
- Online Application: Entrepreneurs can conveniently apply for and manage their loans through a simple online process.
MSME Loan Benefits
MSME loans come with many benefits that can help grow your business:
- Helps business growth: An MSME loan can fund new projects, expand your business, or help you enter new markets without causing financial stress.
- Improves cash flow: These loans assist in managing short-term cash needs, so your business runs smoothly.
- Supports innovation: You can use MSME loans to buy new technology, machinery, or develop new products, helping you stay ahead of competitors.
- Possible tax benefits: The interest you pay on MSME loans may be eligible for tax deductions, lowering your overall tax liability.
- Government backing: Many MSME loans are part of government schemes like Mudra Loans, CGTMSE, and Stand-Up India, which offer extra benefits such as interest subsidies.
Eligibility criteria for MSME/SME loan
MSME/SME loan eligibility in India generally requires you to be an Indian citizen, usually aged between 21 and 65 years, with a business that meets minimum operational history, turnover, and credit score requirements. You will also need to submit KYC documents, proof of business address, and evidence of business activity or registration. Eligibility rules can vary by lender, so it’s important to confirm the exact requirements with the lender.
Applicant Criteria
- Nationality: Must be an Indian citizen.
- Age: Typically between 21 and 65 years, though some lenders may vary.
- Credit Score: A strong credit score, often 700 or above, is needed to show financial reliability.
Business Criteria
- Business History: Most lenders require the business to have been operating for 1–3 years.
- Annual Turnover: The business should meet a minimum turnover, which varies by lender.
- Profitability: Some lenders expect the business to have made a profit for at least one year.
- Business Type: Eligible businesses usually fall under manufacturing, trading, or service sectors.
Required documents for MSME/SME loan
- Identity and Address Proof: Required for both the individual and the business, such as Aadhaar, PAN, Voter ID, utility bills, or lease agreements.
- Financial Documents: Bank statements (usually for the past 6–12 months) and Income Tax Returns to verify financial health and compliance.
- Business Registration Proof: Depending on the business type, documents like Partnership Deeds, Memorandum of Association (MoA), or Articles of Association (AoA) may be needed.
- Business Plan: A comprehensive business plan detailing the business, its growth potential, and long-term objectives.
Types of MSME loans
Term loans
A term loan is a business loan provided as a lump-sum amount and repaid through fixed Equated Monthly Instalments (EMIs) over an agreed tenure. It is commonly used for capital expenditure, such as purchasing machinery, equipment, vehicles, or commercial premises.
Working capital loans
A working capital loan is a short-term financing facility designed to support the day-to-day operational requirements of a business. It can be used to fund expenses such as inventory purchases, employee salaries, rent and other routine business costs, helping to manage cash flow between incoming and outgoing payments.
Bill or invoice discounting
Bill or invoice discounting enables a business to obtain funds against outstanding customer invoices before payment is received. This helps release capital tied up in receivables and improves liquidity without having to wait for customers to settle their dues.
Overdraft facilities
An overdraft facility provides a pre-approved credit limit that a business can access whenever required. Interest is charged only on the amount utilised rather than the entire sanctioned limit, making it a flexible option for managing fluctuating working capital requirements.
Collateral-free loans
Collateral-free loans are unsecured MSME financing facilities that do not require the borrower to pledge assets as security. Many such loans are supported by guarantee schemes such as the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), which helps reduce the lender's risk and improve access to credit for eligible businesses.
Types of MSME loans
Term loans
Term loans are loans provided by banks or financial institutions to businesses for a fixed tenure, typically used for purchasing long-term assets like machinery, land, or infrastructure. These loans are repaid in equated monthly instalments (EMIs) over a period ranging from one year to several years. Interest rates are generally higher than those for working capital loans, and repayment schedules are fixed in advance. The loan amount, tenure, and interest rates depend on the financial health of the borrower, the project’s feasibility, and other factors. Banks require a detailed project report before sanctioning the loan and may ask for collateral as security. These loans play a crucial role in business expansion and asset development.
Working capital loans
Working capital loans are short-term loans designed to help businesses meet their day-to-day operational expenses. These loans are essential for covering the gap between a company's short-term liabilities and assets, such as raw materials, inventory, and salaries. In India, banks and financial institutions provide working capital loans based on the company's operational cycle and the nature of its business. The amount of the loan is typically determined by the business's financial health, past performance, and creditworthiness. These loans help maintain liquidity and ensure smooth business operations without affecting long-term financial stability. Interest rates are usually lower than term loans, but the tenure is short, usually ranging from 12 months to a few years.
Bill discounting
Bill discounting is a financial service where a business sells its receivables or bills to a bank or financial institution at a discounted rate in exchange for immediate cash. In India, this process helps businesses improve their cash flow by reducing the waiting time for payment from clients. The business typically receives a percentage of the invoice value, with the balance paid once the client settles the bill. Bill discounting is useful for companies that need quick funds to continue operations but do not want to take out a traditional loan. The bank or financial institution charges interest on the discounted amount, and this service is common in industries with long credit cycles or large orders.
Overdraft facility
An overdraft facility is a type of short-term borrowing arrangement provided by banks to businesses or individuals. It allows the account holder to withdraw more money than what is available in their account, up to a certain limit. In India, overdrafts are commonly used by businesses to manage temporary cash flow gaps. The limit is generally decided based on the financial stability of the account holder and their business requirements. Interest is charged only on the overdrawn amount, and the overdraft must be repaid within a short period, usually within a year. This facility provides flexibility as it can be accessed anytime the account holder needs additional funds, making it a convenient option for managing working capital needs.
CGTMSE (Credit Guarantee Fund Scheme for MSMEs)
The Credit Guarantee Fund Scheme for Micro, Small, and Medium Enterprises (CGTMSE) is an initiative by the Government of India to encourage financial institutions to lend to MSMEs without the need for collateral. Under this scheme, the government provides a guarantee to banks and financial institutions for loans given to eligible MSMEs, thereby reducing the risk for lenders. The scheme promotes financial inclusion by enabling small businesses to access credit without the burden of providing tangible security. MSMEs can avail of loans for working capital and term loans under this scheme. The maximum guarantee cover is up to 85% of the loan amount, depending on the loan size and borrower category, ensuring better access to finance for smaller enterprises.
Collateral-free loans
Collateral-free loans are loans provided by financial institutions or banks without requiring the borrower to pledge any assets as security. These loans are typically available to small businesses, start-ups, and individuals with good credit histories and repayment capacity. In India, various government schemes such as MUDRA and CGTMSE offer collateral-free loans to promote entrepreneurship and support micro, small, and medium enterprises (MSMEs). These loans help borrowers who may not have valuable assets to offer as collateral, making it easier for them to access credit. While these loans do not require physical assets, they often come with higher interest rates to compensate for the lack of collateral, and lenders may assess the borrower’s financial health more carefully.
MUDRA loans
MUDRA (Micro Units Development and Refinance Agency) loans are government-backed loans aimed at providing financial assistance to micro, small, and medium enterprises (MSMEs) in India. Under the MUDRA scheme, businesses in the non-corporate, non-farm sector can access loans for starting or expanding their ventures. The loans are available under three categories: Shishu (up to Rs. 50,000), Kishore (Rs. 50,001 to Rs. 5 lakh), and Tarun (Rs. 5 lakh to Rs. 10 lakh). These loans are intended to encourage entrepreneurship, particularly in rural and underserved areas. MUDRA loans are collateral-free and have lower interest rates than regular business loans, making them an attractive option for small business owners. The scheme promotes financial inclusion by providing easier access to credit for small entrepreneurs.
Stand-Up India loans
The Stand-Up India scheme is a government initiative aimed at promoting entrepreneurship among women and scheduled caste or scheduled tribe (SC/ST) individuals. Under this scheme, banks provide loans ranging from ₹10 lakh to Rs. 1 crore to eligible borrowers for setting up greenfield projects in the manufacturing, services, or trading sectors. The scheme’s objective is to foster economic independence by encouraging new business ventures. In the Indian context, Stand-Up India loans are collateral-free and are designed to address the funding gap faced by women and marginalized communities. These loans are available with flexible repayment terms and are part of the government’s broader efforts to support inclusive growth and economic empowerment.
Export credit
Export credit refers to the financial assistance provided to exporters by banks or financial institutions to support their international business operations. In India, export credit is essential for businesses involved in exporting goods and services, as it helps manage the risks associated with international trade. The Export-Import Bank of India (EXIM Bank) plays a key role in providing export credit to Indian exporters. These loans are typically offered at competitive interest rates and can be used for financing export activities such as production, procurement, and shipment of goods. The government also offers insurance and guarantee schemes to protect exporters from payment defaults, making it easier for businesses to explore global markets and increase exports.
Government subsidy loans
Government subsidy loans are loans provided at a subsidised interest rate or with certain financial benefits, typically aimed at specific sectors or groups in need of financial support. In India, these loans are offered under various government schemes to promote economic development and support businesses in sectors like agriculture, rural development, education, and small industries. The government provides financial assistance either through direct subsidies or by reducing the interest rates on loans provided by banks and financial institutions. These loans help reduce the financial burden on borrowers and make credit more accessible, particularly for those who may not qualify for standard loans. The aim is to promote social and economic development while improving access to essential services and business opportunities.
Government MSME Loan Schemes in India
Several Government of India initiatives support MSME lending by improving access to finance and reducing the overall cost of borrowing:
- Pradhan Mantri Mudra Yojana (PMMY) — Provides collateral-free loans of up to Rs. 20 lakh through four categories: Shishu (up to Rs. 50,000), Kishore (Rs. 50,001 to Rs. 5 lakh), Tarun (Rs. 5 lakh to Rs. 10 lakh) and Tarun Plus (Rs. 10 lakh to Rs. 20 lakh for borrowers who have successfully repaid a Tarun loan). The maximum loan limit under the scheme was increased from Rs. 10 lakh to Rs. 20 lakh in October 2024.
- Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) — Facilitates collateral-free lending by providing guarantee cover to participating lenders. The guarantee cover has been enhanced and is now available for eligible loans up to Rs. 10 crore.
- Stand-Up India — Offers loans ranging from Rs. 10 lakh to Rs. 1 crore to women entrepreneurs and entrepreneurs from Scheduled Caste (SC) and Scheduled Tribe (ST) communities for establishing greenfield enterprises.
- Prime Minister's Employment Generation Programme (PMEGP) — Supports the creation of new micro-enterprises through a credit-linked subsidy mechanism, helping entrepreneurs start income-generating businesses.
- Credit Linked Capital Subsidy Scheme (CLCSS) — Assists MSMEs in upgrading technology and modernising operations through capital subsidy support.
- PSB Loans in 59 Minutes — A digital platform that provides in-principle approval for MSME loans through participating public sector banks and financial institutions, with support from SIDBI.
- Startup India — Provides recognised startups with access to various incentives, including tax benefits, funding support and measures aimed at encouraging innovation and business growth.
MSME Loan Schemes initiated by the Govt. of India
Government-initiated MSME loan schemes offer financial support to Micro, Small, and Medium Enterprises (MSMEs). These initiatives aim to facilitate easy access to credit and promote entrepreneurship among MSMEs. Some popular schemes include:
- CGTMSE: Credit Guarantee Fund Trust for Micro and Small Enterprises
- CLCSS: Credit Linked Capital Subsidy Scheme
- Credit Guarantee Scheme
- Pradhan Mantri Mudra Yojana
- National Small Industries Corporation (NSIC)) Subsidy
- PMEGP: The Prime Minister Employment Generation Programme
- PMRY: Prime Minister’s Rozgar Yojana
- PSB Loans in 59 minutes under SIDBI
- Startup India Scheme
How to calculate MSME / SME loans EMI
EMI (Equated Monthly Installment) for MSME or SME loans can be calculated using mathematical formulas or online Business Loan EMI calculators provided by banks and financial institutions. The EMI calculation considers factors such as loan amount, interest rate, and loan tenure. The formula for EMI calculation involves the principal amount, interest rate, and loan tenure. It's essential to consider the impact of interest rates on EMI and choose a repayment tenure that aligns with the business's cash flow. Regularly paying EMIs on time helps maintain a good credit history and ensures smooth loan repayment.
The formula to calculate the Equated Monthly Installment (EMI) for an MSME or SME loan is:
EMI = P*r/1-(1+r)^{-n}
Where:
P = Principal loan amount
R = Monthly interest rate (annual interest rate divided by 12 and expressed as a decimal)
N = Loan tenure in months
This formula calculates the fixed monthly installment amount that includes both principal and interest components. It's essential to ensure that the values used in the formula are consistent with the terms of the loan agreement.
MSME / SME loans fees and interest rates
MSME / SME Loans Fees and Interest Rates | Details |
Customized Interest Rates | Fair, Transparent – starting from 1.25% per month |
Processing Fees | 2-5% |
Loan Tenure | Up to 3 years |
Pre-closure Charges | Pre-closure charges are applicable as per the lender’s policy |
Eligibility Criteria | > ₹90,000 turnover for 3 months |
Loan Amount | ₹50,000 – ₹2 crore |
Installments | Flexible Monthly / Bi-weekly |
How to Apply for MSME Loan Online
To apply for an MSME loan online, follow these steps:
Step 1: Visit your preferred bank's official website.
Step 2: Log in if you're an existing customer; if not, create an account.
Step 3: Fill in mandatory details, including personal, income, and business information, and loan requirements.
Step 4: Submit the loan application form online.
Step 5: Upload mandatory documents, such as personal, business, and income proofs.
Step 6: A bank executive will contact you for further procedures.
Step 7: After document verification, the loan is approved.
Step 8: The approved funds are disbursed to your business account within the specified timeframe.
How to track your MSME loan status online
Most banks and NBFCs now provide digital services, so you can easily track the status of your MSME loan application and disbursal online.
To check your loan status:
Go to your lender’s official website or mobile app.
Log in with your registered details.
Find the ‘Loan Status’ or ‘Track Application’ section.
Enter your application or reference number if asked.
See real-time updates on your application progress, document verification, approval, and loan disbursal.
Features of managing MSME loan digitally
Modern MSME loans come with several digital features that make managing your loan easy and convenient:
Online EMI payments: Pay your monthly instalments using net banking, UPI, debit cards, or mobile wallets.
Download loan statements: View and download your repayment schedule and statements whenever you want.
Instant notifications: Get automatic alerts for EMI due dates, payment confirmations, and updates on your loan status.
Prepayment and foreclosure: Request to prepay or close your loan early directly through the online portal.
Customer support: Access help quickly through chatbots, toll-free numbers, or email—many lenders offer 24/7 digital support.
How to Manage MSME loan digitally
- Register or log in to your lender’s online platform.
- Link your MSME loan account.
- Set up auto-debit for your EMIs or pay manually online.
- Download your statements and repayment schedule whenever you need them.
- Contact online support if you have any questions or need help.
Tips to improve your MSME loan eligibility
- Maintain a healthy business and personal credit profile, ideally with a credit score of 685 or above. Clear any outstanding dues or overdue payments before submitting a loan application.
- Ensure your financial records are accurate and up to date, including audited financial statements, GST returns and bank statements that demonstrate stable or increasing business turnover.
- Obtain Udyam registration and keep GST compliance current, as these indicate that the business operates within the formal economy and meets regulatory requirements.
- Minimise existing debt commitments wherever possible to improve your repayment capacity and overall loan eligibility.
- Apply for a loan amount that can be comfortably supported by your business cash flow, rather than simply opting for the highest amount available.
- Where eligible, consider government-supported schemes such as MUDRA or CGTMSE, which may offer more favourable borrowing terms and easier access to credit.
Do's and don'ts when applying for an MSME loan
Do's
- Compare interest rates, processing charges and repayment tenures offered by multiple lenders before making a decision.
- Read the sanction letter, loan terms and schedule of charges carefully before accepting the loan offer.
- Check whether you qualify for any government-backed schemes before opting for a standard commercial business loan.
- Borrow only an amount that your projected business cash flow can comfortably repay.
- Ensure all documents and information provided are complete, accurate and up to date to facilitate faster processing and approval.
Don'ts
- Avoid submitting applications to multiple lenders at the same time, as numerous hard credit enquiries may adversely affect your credit score.
- Do not exaggerate business turnover, income or financial projections, as lenders conduct verification checks and discrepancies may lead to rejection.
- Do not focus solely on the interest rate; consider processing charges and other fees when assessing the overall cost of borrowing.
- Avoid mixing personal and business finances, as maintaining separate accounts helps demonstrate financial discipline and strengthens your loan application.
- Do not miss EMI payments, as delays can result in penal charges and negatively affect your credit profile and future borrowing prospects.
Helpful resources and tips for business loan borrowers
Frequently asked questions
To avail of SME/ MSME finance, simply meet the eligibility criteria, apply for the loan, and submit all the required documents.
Entities, self-employed professionals, and self-employed non-professionals like proprietors, retailers, traders and others can get an SME/ MSME loan from Bajaj Finance.
With Bajaj Finance, you can avail of the MSME/ SME loan with an interest rate starting from 14% p.a.
Follow this easy 4-step guide to applying for this loan online:
- Click on ‘APPLY ONLINE’ to open the application form
- Fill out the online application form and authenticate with an OTP sent to your phone
- Fill in your KYC and business information
- Upload the bank statement for the last 6 months and submit the application form
Once you have applied, an authorised representative will contact you with further instructions on getting the funds in your bank account.
Yes, the MSME loan from Bajaj Finance is collateral-free.
An MSME loan from Bajaj Finance comes with interest rates starting as low as 14%.
You can avail of an MSME loan from Bajaj Finance of up to Rs. 80 lakh. To apply, just ensure you meet the eligibility criteria, complete the loan application, and submit all necessary documents.
To apply for an MSME loan from Bajaj Finance, you need to have a CIBIL Score of 650 or higher.
With minimal documentation, flexible repayment options, and competitive interest rates, businesses can avail of a quick and easy MSME loan from Bajaj Finance. However, the loan approval depends on an assessment of the borrower's creditworthiness and other factors like business stability and profitability.
An MSME loan subsidy is a government incentive that provides financial assistance to micro, small, and medium enterprises (MSMEs). This subsidy aims to lower the cost of borrowing by covering a portion of the loan's interest, making it more affordable for businesses to access credit and support their growth and operations.
Yes, MSME loans can be obtained without collateral. These are called unsecured loans, where lenders provide financing based on the business's creditworthiness, financial health, and growth potential. However, unsecured loans might have higher interest rates compared to secured loans due to the increased risk for the lender.
The 25 lakh scheme under the MSME sector refers to the Prime Minister’s Employment Generation Programme (PMEGP). It provides financial assistance of up to Rs. 25 lakh for setting up new manufacturing units. The scheme promotes self-employment and supports individuals in starting small businesses with subsidy and easy loan options.
The 15 lakh subsidy for MSMEs in India is offered under the Credit Linked Capital Subsidy Scheme (CLCSS). It provides a 15% subsidy on loans taken for upgrading technology, with a maximum limit of Rs. 15 lakh. This helps small businesses improve productivity and adopt better machinery and processes.
Several factors can affect SME loan interest rates. These include: the creditworthiness of the business, the purpose of the loan, the loan tenure and the lender's risk assessment of the business.
MSME loans from Bajaj Finance come with a minimum tenure of 12 months and a maximum tenure of 96 months.
Yes, in India, you can pay MSME loan EMIs online through net banking, UPI apps, debit cards, or mobile wallets. Banks and NBFCs also offer auto-debit facilities for easy payments. Paying on time helps maintain your credit score and avoid penalties. Digital support is available for any payment issues.
There is no fixed minimum credit score for all MSME loans, as eligibility varies by lender and scheme. However, a score of 700 or above generally improves approval chances. Lenders may also assess business turnover, repayment capacity, cash flow, and existing financial obligations before sanctioning the loan.
The maximum loan amount depends on the specific MSME scheme and lender. Government-backed schemes and bank loans can range from a few lakh rupees to several crore rupees for eligible businesses. The sanctioned amount is typically based on the enterprise’s funding requirements, financial position, and repayment capacity.
