What happens if I pay late or fail to pay an MSME loan?

Late payments attract interest and penalties according to your loan agreement. Timely repayment helps maintain your credit score and avoids additional charges or higher interest rates. .

What role does the government play beyond providing MSME loans?

The Ministry of MSME supports enterprises through skill development, cluster development, ICT adoption, quality enablement, and market access programmes. Schemes such as PMKVY 4.0 and PM-NAPS enhance business competitiveness, financial literacy, and sustainable growth opportunities. .

Do all bank branches provide MSME loans?

No. Not all branches are equipped to handle MSME lending. Public sector banks must have at least one specialised MSME branch per district or classify branches with high MSME lending as specialised, particularly in industrial clusters. .

Do banks provide advisory services along with loans?

Yes. Banks and NBFCs often offer guidance on business planning, financial management, and scheme navigation to help entrepreneurs make informed decisions and use loans effectively. .

Are MSME loan schemes available for women and minority entrepreneurs?

Yes. MSME schemes prioritise women, SC/ST, and OBC entrepreneurs by offering financial support, subsidised interest rates, and credit-linked incentives to promote business growth and inclusion. .

How can MSME borrowers increase their chances of loan approval?

Borrowers can improve approval chances by maintaining a good credit score, submitting accurate financial statements, having a sound business plan, and keeping their Udyam Registration current. Demonstrating business viability and repayment capacity strengthens lender confidence. .

Do all banks in India provide MSME loans?

Most public and private sector banks provide MSME loans, as mandated by the RBI under priority sector lending norms. This ensures that MSMEs across the country have access to finance on a level playing field. .

Is a credit rating required for MSME loans?

No. A credit rating is not mandatory, but having a good rating can help secure better loan terms, lower interest rates, and reduced processing fees, making the borrower more attractive to lenders. .

What types of MSME loans are available?

MSMEs can access working capital loans for day-to-day operations, term loans for machinery, equipment, or expansion, equipment or technology loans to upgrade infrastructure and productivity, trade finance or bills discounting for receivables management, and microfinance or Mudra loans for micro-enterprises and small businesses. .

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MSME Loan Scheme 2026

MSME loan schemes offer affordable credit for growth, working capital, and upgrades, with rates starting from 8.50% p.a. (approximately). It helps in supporting entrepreneurship and employment through banks, NBFCs (Non-Banking Financial Institutions), and government programs.

Updated On - 24 Feb 2026

What is an MSME Loan?

An MSME loan is a type of financing provided to Micro, Small, and Medium Enterprises (MSMEs) to support their business operations. These loans help entrepreneurs and business owners meet various needs, such as purchasing equipment, managing working capital, paying employee salaries, expanding operations, or covering other business expenses. Many financial institutions and banks in India offer MSME loans with varying interest rates and terms.

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How to Apply for MSME Loan Schemes?

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You can apply for MSME loan schemes through both online and offline mode. Here are the steps to apply for the loan schemes:

Step 1: Complete Udyam Registration

If your business is not already registered, complete Udyam Registration through the official Government of India portal. Most MSME-linked schemes require this registration.

Step 2: Identify the Suitable MSME Scheme

Visit the Ministry of MSME portal, the Jan Samarth portal, or the official website of a participating bank. Check eligibility criteria, loan limits and required documents.

Step 3: Select the Mode of Application

Choose whether to apply:

Online through an official government portal or bank website, or

Offline by visiting a participating bank branch.

Step 4: Submit the Application

Fill in the application form with accurate business and financial details. Upload or submit all required supporting documents.

Step 5: Undergo Verification

The bank or lending institution will review your application, verify documents and assess eligibility and creditworthiness. You may be contacted for additional information if required.

Step 6: Receive Approval and Sign the Agreement

If the loan is approved, the lender will issue a sanction letter outlining the terms and conditions. You will need to sign the loan agreement.

Step 7: Loan Disbursement

After completing all formalities, the approved loan amount will be disbursed to your registered bank account as per the lender’s procedures.

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What are the Purposes of MSME Loans?

The Government of India has introduced an array of loan schemes and credit assistance programs helpful to MSMEs, with more focus:

On MSME Financial Inclusion

Remove barrier restrictions to formal funding

Lessen dependence on informal lending

Establish a stable MSME sector

Develop a robust MSME structure with competitive financial assistance

Affordable credit as the goal to further deliver growth, innovation and new employment sustainability opportunities.
Improves financial health by paying off existing debts.

Key Highlights of MSME Loans

The key highlights of MSME loan schemes are mentioned below:

Sectors covered	Manufacturing, Service, and Trading
Loan amount	Depending upon the scheme, the amount ranges from Rs.50,000 to Rs.5 crore.
Collateral	Free under CGTMSE
Tenure	Depending on the loan type, the tenure ranges from 1 year to 15 years.
Processing time	Fast loan processing, as quick as 59 minutes under “MSME Loan in 59 Minutes” scheme.

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Eligibility for MSME Loans

The key eligibility criteria for MSME loan schemes are given below:

Minimum annual business income should be Rs.2 lakh.

The minimum annual turnover should be Rs.10 lakh.

Must have strong financial stability and good repayment track record.

No history of loan defaults.

A minimum credit score of 750 or above.

Applicants or authorised signatory must be 21 to 65 years old.

The applicant or authorised signatory must have at least three years of work experience in the same enterprise or organisation.

A minimum of 5 years of overall business experience.

All MSMEs operate in the trading, manufacturing, and service sectors and eligible business types are:

Private Limited Companies

Public Limited Companies

Sole Proprietorships

Partnership Firms

Limited Liability Partnerships (LLPs)

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Documents Required for MSME Loan

To apply for an MSME loan, applicants must submit valid documents proving business identity, financial health, and repayment capability. The list of documents required are given below:

Category	Documents Required
Identity Proof (KYC Compliance)	Aadhaar Card, PAN Card, Voter ID, Passport, Driving Licence
Address Proof (Residential and Business)	Utility bills, Rent or Lease Agreement, Property ownership documents, Passport (with updated address)
Business Registration & Constitution Proof	Udyam Registration Certificate, GST Registration Certificate (if applicable), Partnership Deed, Certificate of Incorporation, MOA, AOA, Shop & Establishment Licence
Financial Statements & Income Proof	Bank statements (generally last 6–12 months), Income Tax Returns (ITR), Balance Sheet, Profit and Loss Statement, Cash Flow Statement
Loan Purpose & Project Documents	Project report, Business expansion plan, Machinery or equipment quotations, Working capital requirement details
Photographs	Passport-size photographs of applicant, partners or directors
Collateral / Security Documents (If Applicable)	Property title deeds, Valuation reports, Guarantee documents
Additional / Supporting Documents (If Requested)	KYC of partners/directors, Board Resolution (for companies), Industry-specific licences or approvals

Note: Depending on the loan type and applicant’s profile, banks and NBFCs may request extra documents. Accurate documentation helps ensure quick approval and hassle-free disbursal.

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Benefits of MSME Loans

The key benefits of MSME loans are listed below:

Starting a New Business: Entrepreneurs may use MSME loans to establish new micro, small or medium enterprises, subject to eligibility criteria and lender assessment.

Business Expansion: Existing enterprises can utilise loan funds to expand production capacity, enter new markets or scale operations.

Purchase of Machinery and Equipment: Loans may be used to acquire plant and machinery, tools, testing equipment, furniture, electrical fittings or other business-related assets required for operations.

Infrastructure Development:Funds may be used for construction, renovation or improvement of business premises. Financing of land purchase is subject to scheme guidelines and lender policies and may not be permitted under certain government-linked schemes.

Working Capital Requirements: MSME loans may provide working capital support to manage day-to-day operational expenses, including:

Purchase of raw materials or inventory

Payment of salaries and wages

Utility bills and other recurring expenses

Product or Service Launch: Businesses may use loan funds to introduce new products or services, provided the proposal is commercially viable and approved by the lender.

Operational Continuity: Access to timely finance helps prevent disruptions in production cycles, supply chains and service delivery.

Types of MSME Loans

The various types of MSME loans available are mentioned below:

Category	Scheme Name	Nature of Support / Detailed Description
Credit-Linked / Loan-Based Schemes	Prime Minister’s Employment Generation Programme (PMEGP)	A credit-linked subsidy scheme that supports the establishment of new micro-enterprises. Beneficiaries obtain bank loans, and a portion of the project cost is provided as government subsidy, subject to eligibility conditions.
	2nd Loan for Upgradation of Existing PMEGP / MUDRA Units	Provides additional financial assistance to eligible existing units for expansion, technology upgradation or modernisation after successful repayment of the first loan.
	Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)	Offers credit guarantee cover to banks and financial institutions for collateral-free loans extended to micro and small enterprises, thereby improving access to formal credit.
	PM Vishwakarma	Provides concessional collateral-free credit support to traditional artisans and craftspeople, along with skill training, toolkit incentives and market linkage assistance.
	Self Reliant India (SRI) Fund	A Fund of Funds structure designed to provide equity and growth capital support to MSMEs through SEBI-registered daughter funds, rather than direct lending.
	Raising and Accelerating MSME Performance (RAMP)	A World Bank-supported reform programme aimed at strengthening MSME institutions, improving market access and enhancing credit ecosystem efficiency. It does not provide direct loans to individual enterprises.
Infrastructure & Cluster Development Schemes	Micro and Small Enterprises Cluster Development Programme (MSE-CDP)	Supports development of industrial clusters by funding common facility centres, infrastructure development and technological upgradation to enhance collective competitiveness.
	Scheme of Fund for Regeneration of Traditional Industries (SFURTI)	Promotes cluster-based development of traditional industries such as handicrafts and village industries through infrastructure and skill support.
	Khadi Gramodyog Vikas Yojana	Supports development, modernisation and marketing of khadi and village industry products through institutional assistance.
	Promotion of MSMEs in North Eastern Region (NER) and Sikkim	Provides regional development support including infrastructure assistance and capacity building for enterprises in the North Eastern states and Sikkim.
Skill Development & Capacity Building	Entrepreneurship Skill Development Programme (ESDP)	Offers structured training programmes to develop entrepreneurial skills, technical competence and managerial capabilities among prospective and existing entrepreneurs.
	Assistance to Training Institutions (ATI) Scheme	Provides financial assistance to institutions engaged in conducting MSME-related training, skill development and entrepreneurship programmes.
	Tool Rooms and Technical Institutions	Establishes and supports advanced tool rooms and technical centres offering high-end manufacturing training, testing facilities and technical consultancy services.
Marketing & Market Access Support	Procurement and Marketing Support (PMS) Scheme	Enhances marketing capabilities of MSMEs through participation in trade fairs, vendor development programmes and awareness initiatives on public procurement policies.
	International Cooperation (IC) Scheme	Supports MSMEs in participating in international exhibitions, trade delegations and global business events to improve export potential and global exposure.
	National SC-ST Hub Scheme	Facilitates capacity building and market linkages for entrepreneurs belonging to Scheduled Caste and Scheduled Tribe communities, particularly in public procurement.
Innovation & Rural Enterprise Promotion	A Scheme for Promotion of Innovation, Rural Industries and Entrepreneurship (ASPIRE)	Promotes innovation, incubation and rural enterprise development through support for livelihood business incubators and technology business incubators.

Objectives of MSME Loan Schemes

The key objectives of MSME Loan Schemes are:

Improving Access to Formal Credit: To enable micro and small enterprises to access institutional finance at reasonable interest rates, thereby reducing dependence on informal and high-cost sources of borrowing.

Promoting Collateral-Free Lending: To encourage banks and financial institutions to extend credit without requiring collateral security, supported by credit guarantee mechanisms such as the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

Encouraging Entrepreneurship and Self-Employment: To promote the establishment of new enterprises, particularly among youth, women, first-generation entrepreneurs and socially and economically disadvantaged groups, through credit-linked subsidy and support schemes such as the Prime Minister’s Employment Generation Programme (PMEGP).

Supporting Business Expansion and Technology Upgradation: To facilitate investment in plant, machinery, equipment and modern technologies that enhance productivity, quality and competitiveness of MSMEs.

Strengthening Regional and Rural Development: To promote industrialisation and enterprise development in rural, semi-urban and economically underdeveloped regions, thereby supporting balanced regional growth.

Generating Employment Opportunities: To create sustainable employment by supporting the growth of labour-intensive industries and micro-enterprises across various sectors.

Enhancing MSME Competitiveness: To improve the financial capacity and resilience of MSMEs so they can integrate into national development initiatives and participate effectively in domestic and global markets.

Prime Minister’s Employment Generation Programme (PMEGP)

The Prime Minister’s Employment Generation Programme (PMEGP) is a government-sponsored flagship credit-linked subsidy programme which aims to create entrepreneurs and jobs in India's non-farm sector.

Credit Guarantee Fund Trust for Micro & Small Enterprises (CGTMSE)

CGTMSE is a flagship initiative started by the Ministry of MSME and SIDBI to provide micro and small enterprises with collateral-free credit. The primary goal is to improve the access to finance that enables banks and NBFCs to lend to MSMEs without collateral, allowing first-time and small-scale entrepreneurs to access entry to financing.

Small Industries Development Bank of India (SIDBI) Support

SIDBI is the quintessential financial institution for the promotion, financing, and development of micro, small and medium enterprises (MSMEs) in India. It operates as a direct lender and refinancier to banks and NBFCs with a mission to enhance access to credit, foster modernization, and catalyze sustainable growth among MSMEs.

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Other Relevant MSME Loan Schemes

The table below summarizes the objectives, eligibility, loan details and application process for other MSME Loan Schemes:

Scheme Name	Description & Key Features	Application Steps
Prime Minister’s Employment Generation Programme (PMEGP)	Credit-linked subsidy scheme promoting new micro-enterprises in India’s non-farm sector. Encourages self-employment and job creation, especially among youth, women, and first-generation entrepreneurs. Subsidy support on bank loans; implemented by KVIC under Ministry of MSME.	1. Apply to participating bank for loan 2. Bank sanctions loan 3. Subsidy processed by KVIC/nodal agency
Credit Guarantee Fund Trust for Micro & Small Enterprises (CGTMSE)	Credit guarantee initiative enabling banks and NBFCs to provide collateral-free loans to MSMEs. Covers loans without collateral; encourages lending to new and small enterprises; administered by SIDBI.	1. Apply for MSME loan with participating bank 2. Bank arranges guarantee coverage 3. Loan sanctioned collateral-free
SIDBI Support	Principal financial institution for MSMEs. Acts as direct lender and refinancier to banks and NBFCs. Supports access to credit, technology modernisation, and sustainable enterprise growth.	1. Approach SIDBI or partner bank for loan 2. Submit required documents3. Loan appraisal and sanction by SIDBI/bank
Credit Linked Capital Subsidy – Technology Upgradation Scheme (CLCS-TUS)	Promotes adoption of modern and energy-efficient machinery among MSMEs. Up to 15% capital subsidy on institutional finance for approved machinery.	1. Apply for term loan from participating bank 2.Submitloansanction& machinery details3. Bank forwards claim to SIDBI/nodal agency 4. Subsidy credited after verification
MSME Champions Scheme	Support and competitiveness programme (not a direct loan scheme). Focuses on enhancing productivity, innovation, market linkages, mentoring, and grievance redressal.	1. Register on Udyami Mitra portal2.Submitproject proposals 3. Receive support as per evaluation
Interest Subsidy Eligibility Certificate (ISEC) Scheme	Provides concessional working capital loans to KVIC-approved Khadi and village industry institutions. Loans at 4% per annum interest, with subsidy borne by Central Government.	1. Apply to KVIC for ISEC certificate 2.Submitcertificate to financing bank 3. Loan sanctioned & interest subsidy applied
PSB Loans in 59 Minutes	Digital platform for rapid loan approval by public sector banks. Loans up to Rs.5 crore (term loan, working capital, Mudra loans); automated appraisal with in-principle approval.	1. Apply via PSB 59 Minutes portal 2. Upload required documents and project details 3. Bank conducts automated appraisal 4. Loan sanctioned & disbursed digitally
Pradhan Mantri Mudra Yojana (PMMY)	Provides micro-finance for non-corporate, non-farm enterprises such as traders, service providers, and small businesses. Loans up to Rs.20 lakh (Shishu, Kishore, Tarun categories).	1. Apply at bank, NBFC, orJanSamarthportal 2.Submitidentity, business proof, and Udyam registration 3. Bank appraises and assigns loan category 4. Loan sanctioned and disbursed

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FAQs on MSME Loans

What happens if I pay late or fail to pay an MSME loan?
Late payments attract interest and penalties according to your loan agreement. Timely repayment helps maintain your credit score and avoids additional charges or higher interest rates.
What role does the government play beyond providing MSME loans?
The Ministry of MSME supports enterprises through skill development, cluster development, ICT adoption, quality enablement, and market access programmes. Schemes such as PMKVY 4.0 and PM-NAPS enhance business competitiveness, financial literacy, and sustainable growth opportunities.
Do all bank branches provide MSME loans?
No. Not all branches are equipped to handle MSME lending. Public sector banks must have at least one specialised MSME branch per district or classify branches with high MSME lending as specialised, particularly in industrial clusters.
Do banks provide advisory services along with loans?
Yes. Banks and NBFCs often offer guidance on business planning, financial management, and scheme navigation to help entrepreneurs make informed decisions and use loans effectively.
Are MSME loan schemes available for women and minority entrepreneurs?
Yes. MSME schemes prioritise women, SC/ST, and OBC entrepreneurs by offering financial support, subsidised interest rates, and credit-linked incentives to promote business growth and inclusion.
How can MSME borrowers increase their chances of loan approval?
Borrowers can improve approval chances by maintaining a good credit score, submitting accurate financial statements, having a sound business plan, and keeping their Udyam Registration current. Demonstrating business viability and repayment capacity strengthens lender confidence.
Do all banks in India provide MSME loans?
Most public and private sector banks provide MSME loans, as mandated by the RBI under priority sector lending norms. This ensures that MSMEs across the country have access to finance on a level playing field.
Is a credit rating required for MSME loans?
No. A credit rating is not mandatory, but having a good rating can help secure better loan terms, lower interest rates, and reduced processing fees, making the borrower more attractive to lenders.
What types of MSME loans are available?
MSMEs can access working capital loans for day-to-day operations, term loans for machinery, equipment, or expansion, equipment or technology loans to upgrade infrastructure and productivity, trade finance or bills discounting for receivables management, and microfinance or Mudra loans for micro-enterprises and small businesses.

News about MSME Loan

Union Budget 2026: Government Announces Support to MSMEs

In the Union Budget 2026, the Finance Minister Ms. Nirmala Sitharaman announced that a dedicated Rs.10,000 crore growth fund aimed at strengthening Micro, Small, and Medium Enterprises (MSMEs). This fund is allocated with the aim of providing equity support to high‑potential MSMEs, so that they can scale, innovate, and compete globally. The government's current focus is on nurturing “champion” enterprises through performance‑based incentives and funding.

1 February 2026

RBI Advises Banks to Link MSME Loans to External Benchmark

The government told Parliament that RBI has advised banks to link MSME loans to an external benchmark in order to improve monetary policy transmission. Under this system, loan interest rates will be reset after every three months. Banks have also been asked to allow existing MSME borrowers to switch to the new benchmark-based rates on mutually agreed terms. The government is also implementing Quality Control Orders (QCOs) with exemptions and relaxations for MSMEs. So that there is no disruption to domestic production. To support MSMEs, an extra 10 per cent concession is available that are either located in the northeastern region or managed by women entrepreneurs. Moreover, MSME units are no longer required to maintain an in-house laboratory. The government has also introduced the Mutual Credit Guarantee Scheme for MSMEs to ease access to loans. Banks are not allowed to demand collateral for loans up to Rs.10 lakh for micro and small enterprises.

16 December 2025

Union Budget 2024: FM outlines credit guarantee programs for manufacturing MSMEs

During the Union Budget 2024, Finance Minister Nirmala Sitharaman announced on credit guarantee programs for MSMEs in the manufacturing sector, saying that a new scheme will be introduced to facilitate term loans for MSMEs for the purchase of machinery and equipment without collateral and guarantee. Guarantees of up to Rs.100 crore will be provided by this guarantee fund.

23 July 2024

Union Budget 2024: Credit Guarantee Schemes for MSMEs

Finance Minister Nirmala Sitharaman announced that the government has introduced the credit guarantee scheme to facilitate loans for MSMEs. Under this scheme, a self-providing guarantee form will be provided to the applicants and the scheme will work to cool off any credit risks for MSMEs.

23 July 2024

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