MSME stands for Micro, Small, and Medium-Sized Enterprises that significantly contribute to sustainable development. Companies operating in this sector help create jobs and boost a country’s economic growth. MSMEs are the key drivers of employment, providing decent jobs and encouraging entrepreneurship among women and youth.
Despite their significant contribution to the national economy, MSMEs often face financial crunch, which can be easily managed with a Business Loan. Let’s understand MSMEs, the document requirements, and how to apply for one.
What are MSMEs?
The MSME Development Act 2006 classifies MSMEs into three categories:
| Category | Micro | Small | Medium |
| Investment in Plant and Machinery or Equipment | Not exceeding Rs.1 Crore | Not exceeding Rs.10 Crore | Not exceeding Rs.50 Crore |
| Annual Turnover | Not exceeding Rs.5 Crore | Not exceeding Rs.50 Crore | Not exceeding Rs.250 Crore |
Role of MSMEs in the Indian Economy
MSMEs contribute to the Indian economy in various aspects, including the following:
- Generate employment: Due to their labour-intensive nature, MSMEs employ many people.
- Promote Entrepreneurship: Since these businesses require less investment, they promote innovation and entrepreneurship among individuals of all classes and genders.
- Encourage Regional Development: With a broad presence in rural areas and Tier II and III cities, they promote regional development by reducing economic disparities.
- Promote Exports: MSMEs contribute to the country’s income from foreign countries by engaging in export-oriented activities.
- Diversify the Industry: MSMEs get involved in various industries, including services, manufacturing, trade, and agriculture, diversifying the industry and reducing reliance on a single sector.
- Support Large Industries: Most MSMEs supply products or services to other businesses, contributing to the supply chain.
Why Do MSMEs Need Business Loans?
Most MSMEs have limited financial resources, so they often need Business Loans to handle their operations, build working capital, or expand their horizons. Here are a few reasons an MSME might need a Business Loan:
- Expand operations
- Build working capital
- Repay existing debt
- Buy machinery and equipment
- Manage cash flow
- Restock inventory
- Handle peak and off-season
- Hire or incentivise staff
- Invest in marketing
- Launch a new product
Eligibility Criteria for Business Loans
You must meet the eligibility criteria to qualify for and apply for a Business Loan. These include the following:
- Operating the business for the last three years
- Minimum turnover of Rs.40 Lakh
- Generated profit for at least one year
- Age: 25 to 65 years
- Business Type: Sole Proprietors, Partnership firms, Private Limited Companies, Trusts, or LLPs involved in a manufacturing, services, or trading business.
Documents Required for a Business Loan Application
Here is a list of the required Business Loan documents for a successful application:
- Identity Proof: PAN Card, Driving License, Passport, Voter’s ID, Aadhaar Card
- Address Proof: Passport, Driving License, Voter’s ID, Aadhaar Card, Utility Bill, Bank Statement, Updated Bank Account Passbook
- Ownership Proof: Agreement Copy, Electricity Bill, Maintenance Bill with share certificate, Municipal tax bill, Share certificate
- Business Continuity Proof: Shop and Establishment certificate, Tax registrations-VAT, Service tax, GST registrations
- Firm Constitution: MOA, Partner Ship Deed, GST Registration Certificate
- As per the program:
Financial: Latest two years financials, Latest Tax Audit Report
Banking: Last six months’ bank statement (Business Accounts)
How to Apply for a Business Loan?
If you fulfil the lender’s eligibility and Business Loan documents requirement, follow these steps to apply for Business Loan:
- Visit the lender’s website and navigate to their Business Loan section.
- Click on the ‘Apply Now’ button.
- Select whether you are the bank’s existing customer or a new one.
- Enter the required details.
- Fill out an application form.
- Upload the necessary documents.
- Wait for the verification process to complete and get approval.
Nowadays, leading financial institutions like Kotak Mahindra Bank have made it easier for MSMEs to secure Business Loans without tedious processes and extensive documentation requirements. These loans are preferred for MSMEs that require external funding to sustain or upscale their business. The financial institutions provide quick and hassle-free loans depending on your requirements and repayment capacity.