Different Strokes For Business And MSME Loans!

by Radha Lakshmi Blogger

They may be small, as their name suggests, but it is a very important segment for our economy. So much that, even the Government of India accords high importance to the Micro, Small and Medium Enterprises (MSME) sector enough that it oversees the sector through a separate ministry. It gains prominence because of the immense impact it has on India’s GDP and employment.

According to the numbers, as given by the ministry, the share of MSMEs in GDP hovers around 29%. There are 63.4 million MSMEs in India equally divided between manufacturing, trade and services and also between rural and urban areas. Not just that the MSME sector employs about 110 million people again equally divided between manufacturing, trade and services. Thus, the predominant role of MSMEs in the Indian economy is there for all to see.

The ministry marshals its resources and interacts with other ministries to develop the MSME sector. A prime requirement of the MSME sector is capital for starting an MSME enterprise or to expand and grow an existing MSME. With a view to grow the MSME sector, the government offers numerous types of business loan schemes especially aimed at the sector by financial institutions like Tata Capital. These schemes under business loans category cover a vast range of manufacturing, trade and services enterprises across all sectors. These schemes also provide special emphasis to the northeastern region, women and disabled entrepreneurs.

The schemes target specific areas that include

· Providing credit and financial assistance

· Skill development training

· Infrastructure development

· Marketing assistance

· Technological and quality upgrades

· Other Services

The schemes offer business loans and various business loan schemes to all components of the MSME sector with particular reference to the micro enterprises.

Credit Linked Capital Subsidy Scheme (CLCSS)

This scheme aims to help micro and small enterprises (MSE) to upgrade its technology. The scheme offers a subsidy of 15% on institutional finance availed by MSEs for upgrading technology. The scheme limits the subsidy to a maximum f Rs 15 lakh, which means that business loans up to Rs 1 crore can avail the maximum subsidy. The scheme covers approved machinery/technology under 51 sectors and both new and existing enterprises are eligible under the scheme. The scheme operates through 12 nodal banks/agencies.

Credit Guarantee Trust Fund for MSEs (CGTMSE)

This is a scheme that enables new and existing MSEs to avail collateral free credit facility for both term loans and working capital loans up to a borrowing limit of Rs. 2 crores.

The guarantees apply based on the following limits:

· Micro enterprises - 85%of the amount in default subject to a maximum of Rs. 4.25 lakh maximum extent of guarantee where credit facility is Rs 5 lakh; 75% of the amount in default subject to a maximum of Rs. 37.5 lakh maximum extent of guarantee where credit facility is between Rs 5 lakh and Rs 50 lakh; 75% of the amount in default subject to a maximum of Rs. 150 lakh maximum extent of guarantee where credit facility is between Rs 50 lakh and Rs 200 lakh

· Women entrepreneurs and units in the northeastern region - 80% of the amount in default subject to a maximum of Rs. 40 lakh

· MSE Retail Trade - 50% of the amount in default subject to a maximum of Rs. 50 lakh where credit facility is between Rs. 10 lakh and Rs. 100 lakh

· All other eligible category of borrowers - 75% of the amount in default subject to a maximum of Rs. 150 lakh

The scheme is successful covering about 30 lakh entrepreneurs in the last 10 years.

Scheme for Promotion of Innovation, Rural Industry & Entrepreneurship (ASPIRE)

Under the Skill Development and Training program, the scheme promotes entrepreneurs to innovate, develop skills to make trainees employable and to make the MSME sector more competitive. The scheme envisages the setting up of livelihood business incubators (LBI) and technology business incubators with assistance that include

· Livelihood business incubators - LBIs get up to Rs 100 lakh for setting up LBIs by NSIC, KVIC, Coir Board or any other Institution or Agency of Govt. of India/State or Rs 50 lakh under PPP model for plant and machinery purchases

· Technology business incubators – Rs 30 lakh CapEx for existing incubators; Rs 100 lakh CapEx for new incubators; Rs 3 lakh for each incubator idea

· Creation of enterprise out of innovative ideas - seed capital fund of Rs 100 lakh per incubator for enterprise creation at 50% of project cost or 20 lakh per successful idea whichever is less

· Accelerator workshop

Various NBFCs such as Tata Capital offer some of the SME loan and MSME loan schemes or variations thereof. MSMEs can visit the websites of these institutions to learn about the SME loan and MSME loan schemes and use the facilities such as the business loan EMI calculator to work out the benefits under the schemes. If they are eligible, applying for an MSME loan is actually simple.

With just the KYC documents of the owner and the business, along with tax returns and balance sheet, you can apply for an MSME loan. Make sure the business credit score of the company is also attached with the application as it helps in getting a good deal on interest rates.

Every business at some point needs funds and an MSME loan can be the answer to that!