What is MSME?

Micro, Small, and Medium Enterprises (MSME) comprises entities involved in the production, manufacturing, processing, or preservation of goods and commodities and are classified into two categories: The manufacturing sector and the Service sector.

The classification of the micro, small and medium enterprises in both the sectors are as follows:

Micro sector:

The micro sector encompasses enterprises with an investment that is less than Rs. 1 crore.

Turnover of such enterprises should be below 5 crores.

Small sector:

The small sector encompasses enterprises with an investment that is less than Rs. 10 crores with a turnover below or up to Rs. 50 crores.

Medium sector:

The medium sector encompasses enterprises with an investment that is less than Rs. 50 crore and with a turnover less than or up to Rs. 250 crores.

To help the MSMEs hit by the unfortunate COVID pandemic, the Indian Government announced collateral-free loans up to Rs. 3 lakh crores. Collateral free MSME loans are loans given without any security or are unsecured loans given to micro, small and medium enterprises.

The collateral-free MSME loan is aimed at helping the businesses under MSMEs to combat the shortage of cash and funds due to the pandemic and restart or boost their business. This will help businesses who could not do well because of the pandemic, get some kind of relief.

This collateral-free business loan for the MSMEs is also called the Emergency Credit Line Guarantee scheme (ECLGS), which was announced by the Finance Minister in May 2020 included in the Atma Nirbhar Bharat Abhiyan Package.

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Who is Eligible for the Scheme?

Let’s take a look at who is eligible for the scheme. The business not having a combined loan of more than Rs. 25 crores across all banks, NBFCs, and FIs and a turnover up to Rs.100 crores for the financial year 2019-2020 are eligible for the scheme.

The business can be a proprietorship or in partnership, all kinds of such businesses are allowed to take the loans. However, you are not allowed to take loans for personal use. That means the director of the firm cannot use the loans for themselves. It has to be strictly for business purposes.

The person taking the loan needs to make sure that they have taken loans from banks, financial institutions, or NBFCs before they take loans under the collateral-free MSME loans. They need to have creditworthiness before taking these loans. The business needs to be registered under GST or it should be a business that doesn’t need to be registered under the GST Act.

This was all about eligibility. Let’s take a look at how can we apply:

You don’t need to go to the bank or FI or NBFCs. They will come to you with a scheme if you fit into the eligibility criteria. You just have to apply for it if you want. In case you don’t want the scheme you can always inform them that you want to opt-out and they will do so.

The bottom line:

MSME loans can be applied by the business if they fall under the bracket of the eligibility criteria given above. These business loans will be provided to you by the banks or financial institutions or NBFCs. Check out Finserv MARKETS for MSME loans.

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