What do you mean by ‘MSME Loan’? Here’s What You Need to Know


Financial institutions offer various kinds of MSME loan schemes; each meant to fulfil a specific requirement of the enterprise it is being used for. Therefore, one should always choose a scheme only after having made a good amount of research regarding the benefits offered.

What do you mean by ‘MSME Loan’? Here’s What You Need to Know

The formal definition of MSME seems quite complicatedly laid out and therefore it creates quite a lot of confusion. We have tried to explain the term in the easiest way possible below:

A Micro, Small or Medium Enterprise (MSME) can be defined based on the type of the sector they belong to:

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Production, manufacturing, preservation or processing of goods:

  • Micro Enterprise – An enterprise that invests not over Rs.25lakh on plant and machinery
  • Small Enterprise – An enterprise who’s investment exceeds Rs.25 lakh but is less than Rs.5crore
  • Medium Enterprise – An enterprise that invests above Rs.5 crore but does not exceed Rs. 10 crore

Providing specific services:

  • Micro Enterprise – Invests up to Rs. 10 lakh
  • Small Enterprise – Investment exceeds Rs. 10 lakh but is less than Rs. 2 crore
  • Medium Enterprise – Investment is above Rs. 2 crore but is less than Rs. 5 crore.

Often, MSMEs seek funds and other financial schemes that can help them further expand their business operations. Numerous financial institutions specialize in offering customized MSME loans to micro, small and medium enterprises.

MSME’s contribution

Not many are aware of the fact that loan offered to MSMEs greatly contribute towards the overall economy of the nation in terms of production, exports and employment. As a result, numerous mainstream loan lenders have now tied up with MSME financing companies to help enterprises grow.

What do the schemes cover?

Under the guidelines set by the Government, the enterprise can utilize the loan amount for acquiring new assets and machinery that fall under the eligibility criteria of the scheme opted for.

Different Types of Financing Options for Enterprises:

Loans from Financial Institutions or Private Lenders

There are chances you may intend to get started with a new project within your company. The process will require a good amount of funding which can be obtained from a financial institution. Moreover, funds can also be acquired for modernization and renovation purposes.

Public Deposits

Several companies encourage their stakeholders, employees and even general public to deposit into the company’s savings. However, based on the set guidelines, the company can accept such deposits only up to three years at a time. The deposit can be used for short and medium-term requirements.

Trade Credit

Companies often purchase raw materials and other necessary materials on credit. In most cases, suppliers grant credit exceeding not more than 6 months. It is worth noting that the credit offered is directly proportional to the business volume. As a result, when the number of sales increases, the volume of purchase will increase and so will the credit offered by the supplier.

The ones listed above are just some of the schemes that can largely benefit an MSME when it comes to further expansion of business. Other financing options include, but are not limited to, reinvestment of profits, risk capital and issue of shares, factoring and discounting bills of exchange. It is recommended that you as an entrepreneur spend some time analysing the actual need for the finance, based upon which a precise selection can be made.

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