Micro, Small, and Medium Enterprises (MSME) are the driving force of the Indian economy. These entities are engaged in production and service-related sectors like manufacturing, packaging, and goods and commodities storage.

According to the Micro, Small and Medium Enterprise Development (MSMED) Act of 2006, companies were classified based on their nature of business, like manufacturing and service sector. The classification was determined by the investment in the company and was different for both categories of companies.

Since the amendment of the MSMED Act in 2018, companies are no longer differentiated based on the nature of business. The capital invested and the company’s annual turnover are the deciding factors for classification.

As per the amendment made in the MSME Development Act in 2018, the classification was bifurcated based on the annual turnover of all MSME enterprises.

Type of Enterprise	Capital Investment	Annual Turnover
Micro Enterprise	Less than Rs. 1 crore	Less than Rs. 5 crores
Small Enterprise	Less than Rs. 10 crores	Less than Rs. 50 crores
Medium Enterprise	Less than Rs. 50 crores	Less than Rs. 250 crores

Any company, regardless of its annual turnover, requires funds for establishments or business set-up, factory expansion and operating expenses. In such a case, small and medium-sized companies can opt for an MSME loan from financial institutions. 

Over the years, many institutions provide MSME loans without collateral for flexible tenures. However, a good business credit score is needed for enterprises to avail of MSME loans without collateral.

MSME loan interest rates differ by the financial institution and credit score of the borrowing company. Some lenders like Fullerton India offer attractive MSME loan interest rates starting from 11.99% per annum.

Also Read: MSME Loan Tips for Young Entrepreneurs