Business loans
MSME Loan: Types, Schemes and How to Choose the Right One
Quick answer
An MSME loan is a business loan to a micro, small or medium enterprise. The main types are term loans, working capital (cash credit or overdraft), machinery loans, invoice discounting and loans against property. Government schemes like Mudra (up to ₹20 lakh), CGTMSE (collateral-free up to ₹10 crore) and PMEGP (15–35% subsidy) make them cheaper or easier to get. Choose by what the money is for, how much you need and whether you have collateral.
On this page
- Does your business count as an MSME?
- Pick a loan by what you need it for
- Types of MSME loans
- Government schemes for MSME loans
- Where to borrow: banks vs NBFCs
- Documents required for an MSME loan
- How to choose the right MSME loan in 5 steps
- Mistakes to avoid
- Protections you get as an MSME
- Frequently asked questions
Does your business count as an MSME?
From 1 April 2025, a business is classified by both its investment in plant, machinery or equipment and its annual turnover:
| Category | Investment up to | Turnover up to |
|---|---|---|
| Micro | ₹2.5 crore | ₹10 crore |
| Small | ₹25 crore | ₹100 crore |
| Medium | ₹125 crore | ₹500 crore |
Revised limits notified in March 2025, effective 1 April 2025. Before that, the micro limits were ₹1 crore investment and ₹5 crore turnover.
To prove it, get Udyam registration. It's free on the official portal, and almost every MSME loan and scheme asks for it. Your Udyam certificate also shows which category you're in.
Pick a loan by what you need it for
The commonest mistake is using the wrong kind of loan for the job. Start with the purpose:
| If you need to… | Look at |
|---|---|
| Buy stock or pay daily expenses | Cash credit or overdraft Pay interest only on what you use. Estimate your working capital limit |
| Buy a machine or equipment | Machinery or term loan CGTMSE for no collateral; MCGS for large manufacturing projects |
| Get paid faster by big buyers | Invoice discounting or TReDS Cash now against unpaid invoices |
| Start a new manufacturing or service unit | PMEGP or Mudra PMEGP adds a 15–35% subsidy |
| Take a small first loan, up to ₹20 lakh | Mudra loan Collateral-free, from most banks |
| Borrow a large amount with no property to pledge | CGTMSE-backed loan Up to ₹10 crore, guarantee fee 0.37–1.20% a year |
| Borrow a large amount and you own property | Loan against property Usually the cheapest large loan |
| Fund your trade as an artisan or craftsperson | PM Vishwakarma ₹1 lakh, then ₹2 lakh, at 5%, no collateral |
Types of MSME loans
Term loan
A lump sum repaid in EMIs, for expansion, premises or a big one-time cost.
- Tenure: Typically 1–7 years
- Security: The asset financed, property or a CGTMSE guarantee
Working capital (CC / OD)
A revolving limit for stock, raw material and running costs. You draw and repay as cash comes in.
- Tenure: 12 months, renewed yearly
- Security: Stock and receivables
Machinery and equipment loan
Funds a specific machine, with the machine itself as security.
- Tenure: Matched to the machine's working life
- Security: The machine, plus CGTMSE if needed
Invoice and bill discounting
Cash now against invoices your customers will pay later, including on TReDS platforms for buyers like large companies and PSUs.
- Tenure: The invoice period, often 30–180 days
- Security: The invoice itself
Loan against property
A large, long loan secured on residential, commercial or industrial property.
- Tenure: Often up to 10–15 years
- Security: Property
Unsecured business loan
Fast, collateral-free loans from private banks, NBFCs and fintechs, priced higher.
- Tenure: Typically 1–5 years
- Security: None
Tenures are typical ranges; each lender sets its own.
Government schemes for MSME loans
Schemes don't usually lend money themselves. They guarantee, subsidise or cheapen loans that banks and NBFCs make.
| Scheme | Up to | What it gives you |
|---|---|---|
| Mudra (PMMY) Micro businesses | ₹20 lakh | Collateral-free loans in four categories: Shishu, Kishore, Tarun and Tarun Plus |
| CGTMSE Micro and small | ₹10 crore | 75–90% guarantee, so banks lend without collateral |
| PMEGP New units only | ₹50 lakh project ₹20 lakh for service units | 15–35% capital subsidy on the project cost |
| Stand-Up India SC/ST and women entrepreneurs | ₹1 crore | Bank loans of ₹10 lakh to ₹1 crore for new (greenfield) enterprises |
| PM Vishwakarma Artisans in 18 traditional trades | ₹3 lakh In two tranches | ₹1 lakh, then ₹2 lakh, at 5% interest, no collateral |
| MCGS-MSME Manufacturing MSMEs | ₹100 crore loan | 60% guarantee on loans for machinery and equipment that make up at least 75% of the project cost |
| PSB Loans in 59 Minutes GST-registered businesses | Varies | Online in-principle approval from public sector banks |
As of October 2026. MCGS-MSME runs for 4 years from January 2025 or until ₹7 lakh crore of loans are guaranteed; PM Vishwakarma runs to 2027-28.
Compare them side by side on our government schemes page.
Where to borrow: banks vs NBFCs
| Lender | Rates (Oct 2026) | Good for |
|---|---|---|
| Public sector banks | Benchmark 8.15–8.35% + spread | Lowest cost, scheme loans and secured loans; slower |
| Private banks | Unsecured from about 13% | Faster decisions, digital process |
| NBFCs and fintechs | About 14–24% | Newer businesses, thin paperwork, speed |
Lender-by-lender figures, fees and what borrowers actually pay are on our business loan interest rates page.
Documents required for an MSME loan
- KYC of the business and owners: PAN, Aadhaar, address proof
- Udyam registration certificate
- GST registration and returns for the last 12 months, if registered
- Bank statements for the last 6–12 months
- ITR and financial statements for the last 2–3 years
- Business proof: shop licence, partnership deed or incorporation documents
- Project report, for term loans, scheme loans and larger amounts
- Quotations for machinery; property papers for secured loans
How to choose the right MSME loan in 5 steps
- Match the loan to the purpose. Short-term needs (stock, receivables) get working capital. Long-term assets (machines, premises) get a term loan. Use the table above.
- Size it to your cash flow. Many lenders want your monthly surplus to cover total EMIs about 1.25 times or more. Test amounts on the business loan EMI calculator.
- Decide on security. Property brings the lowest rates. Without it, ask for Mudra (up to ₹20 lakh) or CGTMSE cover before settling for a costly unsecured loan.
- Check every scheme you qualify for. A new unit may get a PMEGP subsidy; a woman or SC/ST founder may qualify for Stand-Up India or higher CGTMSE cover.
- Compare the full cost. Get two or three quotes and compare the APR on each Key Fact Statement, plus foreclosure charges and the time to disburse.
Mistakes to avoid
- Buying a machine with your overdraft Short-term money for a long-term asset squeezes cash flow. Take a term loan instead.
- Borrowing the maximum offered Extra EMIs you don't need hurt your eligibility for the next loan.
- Looking only at the interest rate A 4–5% processing fee or foreclosure charge can cost more than a 1% rate difference.
- Skipping Udyam and GST filing Without them you lose access to most schemes and pay higher rates.
- Applying everywhere at once Several credit checks in a short time can lower your score. Apply first where you're most likely to qualify.
Protections you get as an MSME
- No collateral up to ₹10 lakh: under RBI rules, banks shouldn't ask for collateral on loans up to ₹10 lakh to micro and small enterprises.
- No prepayment penalty on floating-rate loans: for floating-rate loans to micro and small enterprises sanctioned from 1 January 2026, most banks can't charge for early repayment.
- Paid within 45 days: under Section 43B(h) of the Income Tax Act, buyers can deduct payments owed to registered micro and small suppliers only once they're actually paid, within the agreed period of up to 45 days.
- Complain about late payments: registered micro and small enterprises can file delayed-payment complaints on the government's MSME Samadhaan portal. Work out the interest you're owed with the MSME delayed payment interest calculator.
Find the right MSME loan for your business
Tell us about your business and what you need the money for, and a Kredway loan advisor calls you back to talk through which loan types, schemes and lenders fit. We advise; we don't lend.
Frequently asked questions
What is an MSME loan?
Any business loan to a micro, small or medium enterprise. It can be a term loan, working capital, machinery loan, invoice discounting or loan against property, and may be backed by schemes like Mudra, CGTMSE or PMEGP.
Who is eligible for an MSME loan?
Businesses within the MSME limits (for micro, up to ₹2.5 crore investment and ₹10 crore turnover from April 2025), usually with Udyam registration, a clean credit record and enough cash flow to repay. Each lender and scheme adds its own conditions.
Can I get an MSME loan without collateral?
Yes. Mudra loans up to ₹20 lakh and CGTMSE-backed loans up to ₹10 crore need no collateral, and banks shouldn't ask for collateral on micro and small enterprise loans up to ₹10 lakh.
Is Udyam registration required for an MSME loan?
Most banks and nearly all government schemes ask for it. It's free on the official Udyam portal and takes a few minutes with Aadhaar and PAN. Our Udyam registration guide walks through every step.
Which MSME loan has the lowest interest rate?
Secured loans and scheme loans from public sector banks are usually cheapest, priced off benchmarks of 8.15–8.35% in October 2026 plus a spread. PM Vishwakarma loans are at a concessional 5% for eligible artisans.
Can a new business get an MSME loan?
Yes. Mudra, PMEGP and Stand-Up India are designed for new enterprises, and CGTMSE covers new units too. A solid project report matters most when you have no track record.
MSME loan kaise milta hai?
Pehle Udyam registration karwayein. Phir tay karein loan kis kaam ke liye chahiye: stock ke liye cash credit, machine ke liye term loan, naye unit ke liye PMEGP ya Mudra. Documents taiyaar karke apne bank ya JanSamarth portal par apply karein, aur do-teen lenders ka Key Fact Statement compare karein.
Sources
- All India Radio News: Revised MSME classification criteria (March 2025)
- Bank of Maharashtra: Mutual Credit Guarantee Scheme for MSMEs
- PIB: PM Vishwakarma scheme (September 2023)
- PIB: PMMY limit raised to ₹20 lakh (October 2024)
- KNN India: CGTMSE ₹10 crore cover and fees
- Bank of Maharashtra: PMEGP
- Business Standard: Major banks hike loan rates after RBI move (October 2026)
- SCC Online: RBI Pre-payment Charges Directions, 2025