List Of Eligibility Criteria For MSME To Avail A Business Loan
MSMEs are micro, small and medium enterprises that are small sized entities and they differ in terms of their size of the investment. They are a vast contributor to the country’s output and provide employment opportunities to a very large number of people whether they are skilled, semi-skilled or unskilled labourers. They constitute sectors such as agriculture, education, housing, export credit and other enterprises expressed by the government. MSMEs also contribute vastly to exports through their huge manufacturing sector production. They promote the idea of boycotting foreign products and cut down the dependency on imports.
They also provide support to bigger industries by supplying raw materials, goods, components and other finished parts. In this way, they act as an input to the larger industries and support them in doing their activities. They impact a very large section of the population and the weaker sections by helping the economy as a whole. They contribute to the growth of the economy directly or indirectly.
Classification of MSMEs
Micro, small and medium enterprises are classified in terms of their investment in plant and machinery and other equipment.
Micro Enterprises have a ceiling of 25 lakhs on their investment in plant and machinery while small enterprises can invest between 25 lakhs to 5 crores while medium-sized Enterprises have a range between 5 crores to 10 crores.
It is different in case of the service sector, where the investment limits have been set up as 10 lakh, 2 crores and 5 crores for micro, small and medium enterprises respectively. These investments are primarily utilised in equipment.
The loans that are provided to the micro, small and medium-sized enterprises are provided after careful consideration. Lenders set up certain MSME loan eligibility for financing the micro and small enterprises. The lenders sanction the loan only after scrutinizing the borrower, the genuine capital requirement, the business cycle of the borrower and the purpose for which the loan is to be taken.
Banks set a certain target while lending to the micro and small enterprises while it differs from one lender to another but there are some common criteria which every lender looks upon before giving a loan to the MSMEs. While the eligibility criteria for any bank loan for MSMEs including the machinery loan is a lot complex, Non-Banking Financial companies have a far lenient approach. NBFCs don't even ask for a collateral in order to approve the loan. The basic eligibility criteria for these loans are as follows:
Business Age: While opting for an MSME loan, you should ensure that your business is at least three years old and has set up its operation. In other words, it should not be in the initial stage of the business cycle. For loans from NBFCs, the requirement is 2 years.
Income Tax Return: You must submit your income tax return for at least the last 1 year.
Audit: You must ensure that the previous year’s turnover of your business has been duly audited by a chartered accountant, if not you will not be eligible for such kind of loan.
Documents required to opt for an MSME loan:
These are the most common documents which are required but it depends on the lender to lender if they want additional documents.
1. PAN card
2. Residential and office address proof.
3. Bank account statement for the previous 1 year.
4. Income tax return
You must also ensure that you have a very good credit score. Lenders often prefer giving loan based on the creditworthiness of the borrower. Therefore banks act very stringently in cases like these. However, an NBFC might be a bit more lenient in this case.
Also, as an applicant, you should be wise enough to know which loan scheme suits the best for your business. It also depends on the fact whether you can afford to provide an asset as a collateral as a security. If collateral is a worry, then you must always opt for loans from NBFCs as they don't ask for any asset as a collateral. Also, the process of the loan approval is far less complex and time-taking than bank loans. It is also a great option for those with a credit rating on the lower side.