A Guide on the Benefits of MSME Loans

MSMEs, or Micro, Small, and Medium Enterprises have emerged as a major pillar of the Indian economy's foundation.

MSMEs empower citizens to go out on their own and, in turn, give back to society by creating new jobs and diversifying an area's gross domestic product (GDP).

They have also gradually and steadily revived the artisan class in India's far reaches by providing employment, loans, and other services to the said class.

Furthermore, they consistently support technological advancement, infrastructure development, and the modernization of the country and our society as a whole.

MSME Benefits

To assist MSMEs, the Indian government introduced the MSME (Amendment) Bill of 2018 and re-emphasized the MSME Act of 2006. There would be no need for frequent inspections under these laws to ensure that the necessary investments in plant and machinery were made. 

Furthermore, MSMEs' operations would be permitted to continue in a transparent, non-discriminatory, and objective manner.

Some of the additional benefits of registering your MSME under the provisions of these laws are summarised below.

1. Loans from Banks (Collateral Free)

All small and micro-business sectors in India now have access to collateral-free credit, thanks to the Government of India. This initiative provides funds to micro and small businesses. Benefits are available to both old and new businesses under this scheme.

The Government of India, SIDBI (Small Industries Development Bank of India), and the Ministry of Micro, Small, and Medium Enterprises established the Credit Guarantee Trust Fund Scheme to ensure that the Credit Guarantee Scheme is implemented for all Micro and Small Enterprises.

2. Patent Registration Subsidy

Under current legislation, MSMEs registered with the MSME ministry are eligible for a 50% subsidy on patent registration fees.

This motivates small businesses and firms to continue innovating and developing new projects and technologies. Subsidies can be obtained by submitting an application to the relevant ministries.

3. Interest Rate Exemption for Overdrafts

Businesses and enterprises registered as MSMEs can benefit from a 1% discount on their overdraft in a scheme that varies by bank. This contributes to the security of small businesses during unfavorable market conditions.

4. Eligibility for Industrial Promotion Subsidies

MSME registration benefits are that businesses that have been registered as MSMEs are eligible for government subsidies for industrial promotion.

5. Payment Protection (Delayed Payments)

MSMEs are constantly exposed to the risk of late payments, which disrupts their entire operation.

To protect registered businesses, the Supreme Court mandated that any buyer of goods or services from registered MSMEs make payment on or before the agreed-upon date of payment or within 15 days of accepting the goods or services.

This is an MSME benefit for traders. If the buyer delays payment for more than 45 days after accepting the products or services, the buyer must pay interest on the agreed-upon amount. The interest rate is three times higher than the rate announced by the Reserve Bank of India.

6. Less Expensive Electricity bills

All businesses with an MSME Registration Certificate are eligible for electric bill discounts. This allows businesses to increase production and take on more orders without having to worry about capital expenditures on costs such as electricity and maintenance.

Micro, small, and medium-sized businesses can apply for the concession by submitting an application to the department of electricity along with their registration certificate.

7. Reimbursement of ISO Certification Fees

Any registered micro, small, or medium-sized business can claim reimbursement for expenses incurred in obtaining ISO certification. This encourages entrepreneurs to obtain ISO certification for their respective businesses, which allows them to do business abroad in terms of high-quality exports.

8. MSME Tax Benefits

Enterprises with MSME registration can benefit from Direct Tax Exemption in the first year of operation, as specified by the government scheme and depending on business activity.

Government-Backed Loan Programs for Small and Medium-Sized Businesses

1. MUDRA Loans for Micro-units in Small Businesses 

The Micro-Enterprise Development and Refinance Agency (MUDRA) is an organization established by the Indian government to provide business finance to micro-enterprise units. Small businesses and startups are eligible for loans under the scheme. The primary goal is to fund the underfunded by utilizing the concept of low-cost credit. Loans are typically made to micro or small businesses in the manufacturing, trading, and service sectors.

2. Loans for Small and Medium-Sized Enterprises in 59 Minutes

SIDBI, or Small Industries Development Bank of India, launched "MSME loan in 59 minutes" as one of the unique Government Schemes for new businesses, in which a loan is approved in just 59 minutes.The disbursement process takes 8-9 days after the loan is approved.

Loans are made available under this scheme to help with financial assistance and to encourage MSME growth in the country. Both new and existing businesses can apply for financial assistance of up to 1 crore under the scheme.

Loans are made available through a refinancing scheme in which five authorized public sector banks grant funds at varying interest rates based on the nature of your business and credit rating.

3. Micro and Small Enterprise Credit Guarantee Fund Scheme

The CGMSE was established in the year 2000 as a monetary assistance scheme for micro and small businesses. The CGTMSE Scheme, launched by the Ministry of Micro, Small and Medium Enterprises (MSME Ministry) and the Small Industries Development Bank of India (SIDBI), provides collateral-free loans to small enterprises and businesses that meet the scheme's eligibility criteria.

The scheme offers working capital loans of up to ten lakh rupees with no collateral required. SMEs, on the other hand, can provide primary security or mortgage of land and building associated with the business for all loans above 10 lakhs and up to 1 crore, which is again covered by Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

When the loan amount exceeds 10 lakhs, assets created through the loan and associated with the business are also considered as security.

4. Scheme for Guaranteeing Emergency Credit Lines

The Emergency Credit Line Guarantee Scheme (ECLGS) is a new initiative launched by the Modi government in the budget of 2021 to revitalize the MSME sector. The scheme is part of an Rs. 20 lakh crore package for existing MSMEs or businesses to assist them in meeting their daily operational expenses, maintaining a healthy working capital or cash flow, and investing in avenues to keep their businesses operating.

To be eligible for ECLGS, businesses must be registered for GST. MSME owners are not required to provide additional collateral in order to obtain credit. The interest rate will be determined by the credit rating of the business.

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