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Types of MSME Loans | Everything You Need To Know

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Types of MSME Loans | Everything You Need To Know

Types of MSME Loans

The Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly vibrant and dynamic sector of the Indian economy over the last five decades.

The contribution in the economic and social development of the country through able entrepreneurship and employment generation is significant.

MSMEs are complementary to large industries and contributes significantly in the inclusive industrial development of the country.

The MSMEs are widening their domain across sectors of the economy, producing diverse range of products and services to meet demands of domestic as well as global markets.

As per the National Sample Survey (NSS) 73rd round, conducted by National Sample Survey Office, Ministry of Statistics & Programme Implementation during the period 2015-16, there were 633.88 lakh unincorporated non-agriculture MSMEs in the country engaged in different economic activities.

The MSMEs are widening their domain across sectors of the economy, producing diverse range of products and services to meet demands of domestic as well as global markets.

The manufacturing and service industries in India are predominantly supported by MSME’s contributing to the GDP at an impressive amount of 29%.

This sector has become the nation’s second-largest employer and is expected to contribute almost 50% to the GDP three years from now as per a study.

The definition of MSME as defined by the Ministry of Micro, Small and Medium Enterprises states that micro businesses are those business units with investments up to Rs. 1 crore and Rs. 5 crores of annual turnover.

The small unit’s investment up to Rs. 10 crores and Rs. 50 crores annual turnover.

As for the medium enterprises, investment limits were up to Rs. 50 crores and an annual turnover of Rs. 250 crores.

These businesses are most likely to fall under both the manufacturing and service sectors.

The MSMEs need capital to run their businesses and pay for other expenses like salaries, rent, bills, etc.

However, the pandemic plunged them into debt-trap which led to the closing of around 5,900 businesses.

A significant majority of the MSMEs depend on cash and the conventional working style became a hurdle during the pandemic, adding poor knowledge of managing the cash flow and sustaining a small-scale business further pushed them in their struggle.

Thus the need for MSMEs loan rose larger than ever.

What is an MSME loan?

MSMEs have been revered as the backbone of the Indian economy.

To help entrepreneurs to establish such enterprises which build our economy stronger, several financial institutions lend a helping hand in the form of fast business loans called MSME loans, which are specifically designed for MSMEs.

Such loans offer a suite of benefits and features:

  • Borrowers with small business units in the manufacturing and service sectors are eligible for MSME loans.
  • Get quick access to the funding you require to bridge a cash flow gap, explore business expansion etc.
  • Businesses can upgrade their technology to meet the demands of the new era with MSME loans.
  • MSME loans can help one apply for skill development and training programmes that provide small-scale industries with an opportunity to learn and enhance their human resource.
  • Both secured and unsecured MSME loans are available, but the decision is based on the borrower’s capacity to repay the loan in addition to the necessary terms and conditions set forth by the bank.
  • MSME loans usually come with low-interest rates.

Several banks and financial institutions have different categorization of MSME Loans, each depending on the purpose of the loan.

Let us take a look at the different types MSME loan offered by Karnataka Bank where one can avail an easy MSME loan for new business:

1. KBL MSME

To provide funding for Micro, Small and Medium Enterprises. Here the borrower/unit shall be any legal entity, conforming to MSME classification guidelines.

Purpose of this loan facility is for Working Capital requirements, both fund based and non-fund based,Establishment and/or improvement of the unit, repairs & renovations, acquiring machineries/vehicles/ equipment’s/ any fixed assets for the unit or Purchase/acquiring of property (shop/factory/godown /office) for self-use.

2. KBL COMMODITY PLEDGE

To provide funding for traders and millers against the pledge of their agricultural commodities purchased/processed by them (paid commodities) and stored/kept under Collateral Management Arrangement.

3. KBL CONTRACTOR MITRA

To provide funding for contractors for meeting business requirements such as the purchase of new vehicles or second-hand vehicles (including JCB, tractors which are registered with RTA) or new machinery required for civil contract activities.

4. MORTGAGE OD

To provide funding for meeting business, professional, or working capital requirements.

5. MAHILA UDYOG(WOMEN)

To provide funding for women entrepreneurs to meet the credit requirements for any income-generating activity.

6. KBL – XPRESS MICRO MITRA

To provide funding exclusively for Micro entrepreneurs based on working and purchase of machinery, equipment or transport vehicles.

7. KBL -XPRESS BUSINESS QUICK LOAN

To provide financial assistance for MSMEs for business improvement activities like advertisements, office furnishing or repairing equipment & fixed assets etc.

It comes up with easy processing and quick sanction aimed for business improvement.

8. KBL – OVERDRAFT SECURITY DEPOSIT

To provide funding for the issue of FDRs in lieu of a Bank Guarantee for civil contractors engaged in the execution of infrastructure projects.

9. KBL – PM SVANIDHI

This scheme is formulated by the Ministry of Housing and Urban Affairs to provide working capital to street vendors to support their business. Working capital loan up to Rs.10,000/- to incentive regular repayment and to reward digital transactions.

Conclusion

Managing finance is arguably the most important component of any business.

For MSMEs, timely finance is the key to making the most of business opportunities.

With a good credit score and proper documentation, you can get easy and hassle-free MSME loans.

MSME loans have low-interest rates and the majority of MSME loans also don’t need collateral and they are often used for urgent needs thus providing financial flexibility to the businesses to run their firms.

Karnataka Bank offers different MSME loans designed to assist businesses with various purposes to meet their various business requirements..

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