MSME loans without collateral

Latest Classification of MSME

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 EnterpriseCapital InvestmentAnnual Turnover
Micro EnterpriseLess than Rs. 1 croreLess than Rs. 5 crores
Small EnterpriseLess than Rs. 10 croresLess than Rs. 50 crores
Medium EnterpriseLess than Rs. 50 croresLess 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

What is an MSME Loan, and What Can it be Used For?

MSME stands for Micro, Small, and Medium Enterprises, and MSME loans can be said to be the form of loans that allows individuals, MSMEs and startups to get a loan for their financial needs. Most businesses avail these loans to meet their working capital needs, boost their cash flow, or even expand. Therefore, several institutions have provisions for MSME loans.

While most institutions require collateral for the business to be approved, some lenders provide MSME loans without collateral. Since most customers avail of loans to facilitate their businesses and boost their capital, the MSME loans without collateral are preferred because they provide affordable interest rates that make the payment cycle easier. Furthermore, these loans are usually short term loans that have to be repaid within 12 months. However, depending on the business needs, the loan repayment tenure can extend up to five years. The MSME loan procedure is relatively simple, and the eligibility depends on the applicant’s profile, repayment ability, financial stability and creditworthiness. 

The MSME sector is crucial to the country’s economy and employs a significant portion of the population. Therefore, it is essential to provide all necessary support to advance these businesses and provide assistance whenever required. The MSME loan procedures are in place to allow these businesses to flourish and grow without much hindrance. In a broader sense, these loans allow the companies to operate without the fear of bankruptcy. These loans can be used to consolidate debts, make business expansions, invest in new markets, and manage stocks.

Must Read: When Should We Take SMEs/MSMEs loan- [September 2021]