Primarily aimed at creating a good environment for startups and small businesses, the Government of India has been encouraging MSME businesses through the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. Under this act, there are many benefits that are aimed at protecting small businesses, allowing them to grow faster and create more jobs.

MSME loans form a big part of the support enjoyed by MSME businesses in India. There are both private and Government driven loan programmers that aim to give budding entrepreneurs the support they need to drive innovation in the country. With the backing of the Government, banks and finance companies have more security when lending to MSME businesses.

Here is what to research and consider when you are looking to take an MSME loan.

Government Support

A lot of MSME's rely on support from the government in the form of subsidies and loan schemes. The MUDRA (Micro Unit Development and Refinance Agency) loan is an initiative by the Government to support small businesses at various stages of their existence.

The CGTMSE (Credit Guarantee Funds Trust for Micro and Small Enterprises) is a system for credit relief that covers a portion of the loan amount without a guarantee from a third party or any collateral to support it. This encourages banks to lend to MSME's

The PMEGP (Prime Minister's Employment Generation Programme) is a credit linked subsidy program that aims to generate employment through MSMEs. Under this program, the government provides a subsidy of between 15-35% of the loan amount based on the category and location of the business.

Women entrepreneurs are also supported by the Government through the Mahila Uddyami scheme, which provides subsidies and assistance with regards to getting loans.
If you are upgrading the technology used by your MSME business, you may be eligible for a 15% capital subsidy subject to a maximum of Rs. 15 lakh on loans taken for the purpose of the upgrade.

Documents to be provided

When applying for an MSME loan, it is important to carry certain documents to ease the process. Most banks and finance companies will ask you for the following
  • Proof of Business
  • PAN card of business owner and PAN of company/partnership
  • Copy of partnership deed/company registration
  • Bank statement for last 12 months
  • Sales and income tax returns
  • Audited Profit and Loss Statements with Balance Sheet
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The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.

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