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What are The Eligibility Criteria for An MSME Loan in India?

According to a recent report, the Small and Medium Enterprises (SME) sector contributes around 40% to India’s total GDP and plays a crucial role in generating employment. Nonetheless, the MSME sector also often suffers from financial pitfalls, which leads businesses to close shop after a few years.

This problem can, however, be countered by availing of an MSME loan that extends credits against simple terms. Offered against simple MSME loan eligibility terms, these credits can be accessed easily.

To initiate the application process, borrowers will first need to learn about eligibility and documentation compliance. Business owners can also register their firm under the MSME databank to get notifications on lucrative schemes.

What are the eligibility criteria specified for an MSME loan?

Before understanding the loan parameters, individuals should be clear about the distinctions of MSMEs based on turnover. This would help distinguish what the benefits of MSME loan for specific business scales and credit availability are.

The division based on government are as follows –

  • Microenterprise – This category includes companies with a turnover of up to Rs.5 crore
  • Small enterprise – Companies with a turnover of Rs.50 crore belong to this category
  • Medium enterprise – Here, the threshold of turnover can range up to Rs.250 crore

The firms justifying any of the said categories need to fulfil certain parameters to access the MSME credit. Here is a list of MSME loan eligibility parameters set by most lending institutions:

  • Applicants must fall in the age bracket of 25-65 years.
  • An individual should be an Indian resident.
  • Potential borrowers must have a business operating for a minimum of 3 years. 
  • Proof of filing income tax for a respective year.

Apart from fulfilling the mentioned pointers, individuals need to maintain a healthy CIBIL score and submit necessary documents.

What are the documents required for MSME loans?

Applicants also need to submit certain documents that can substantiate a business owner’s MSME loan eligibility.

  • KYC documents 
  • Financial documents of the last six months
  • IT returns and sales tax papers
  • Balance sheet audited by an authorised CA
  • Existing firms also need to submit registration certificate, GST return, etc. 

Keeping the mentioned documents handy makes the credit application and disbursal hassle-free. 

This will further help applicants find lending institutions offering customised services and better terms. For instance, NBFCs like Bajaj Finserv sanction business loans to eligible candidates against minimal documentation. 

They also extend pre-approved offers that make the loan application swift and convenient. Such offers are available on credit forms like business loans, personal loans, etc. Check your pre-approved loan offer instantly by mentioning your name and phone number. 

If an individual is unable to fulfill any of the said parameters, they can implement ways to improve the eligibility for the MSME loan.

How to improve eligibility for an MSME loan?

  • Maintain a high credit score 

Maintaining a good credit score is the primary step to improve loan eligibility. Lenders scrutinize this parameter and repayment history before approving an MSME or other credits like a business loan. Since a credit score substantiates an individual’s creditworthiness, maintaining a healthy CIBIL score would be wiser.

  • Low credit utilisation ratio 

Another smart way to improve MSME loan eligibility is by lowering the credit utilization ratio. In this regard, keeping a ratio below 40% of the disposable income would impress lenders easily.

  • Clear outstanding debts 

The best way to substantiate the repayment capability in a lender’s eyes is by clearing existing debts. Making pre-payments or timely payments are the financial habits that will help one get a business loan without hassle.

Following these methods will improve the MSME loan eligibility effortlessly. Individuals can also keep a check on their savings and pay taxes on time to enhance credibility. This would help them access the preferred credit form without hassle. 

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