SME Loan

What is an SME Loan ?

An MSME loan is a type of business loan that is provided to micro, small, and medium enterprises for starting a business establishment, expanding business, or meeting other business expenses. MSME loans are unsecured in nature and availing them is often a hassle-free process. However, you must meet specific eligibility criteria in order to avail of this type of loan. MSME loans are defined by the Government of India and RBI as “loans for business enterprises for support in terms of finance, infrastructure, and other areas.”

Financial institutions offer these loans under several government schemes like Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). This was set up by the Government of India, Ministry of MSME and SIDBI with a view to facilitating the flow of credit to the MSME sector without the need for collaterals. Under this scheme the lender should:

• Give importance to project viability, and
• Secure the credit purely on the primary security of the assets financed.

If an MSME unit fails to repay the loan, then the Credit Guarantee Scheme (CGS) would make good the loss incurred by the lender up to 85% of the outstanding amount in default. Businesses must meet specific eligibility criteria mentioned under the schemes to enjoy the benefits extended by an MSME loan.