MSME Loan Scheme Types, Interest Rate, Eligibility, and How to Apply Online

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MSME Loan Scheme Types, Interest Rate Starting or expanding a business requires proper financial planning, and for many entrepreneurs, arranging funds is the biggest challenge. MSME loan schemes in India are specially designed to support micro, small, and medium enterprises with affordable interest rates, flexible repayment options, and in many cases, collateral-free financing..

What is an MSME Loan?

An MSME loan is a business loan offered to Micro, Small, and Medium Enterprises for various purposes such as:

  • Starting a new business
  • Expanding existing operations
  • Purchasing machinery or equipment
  • Managing working capital
  • Upgrading technology

Most MSME loans are offered by banks, NBFCs, and government-backed schemes to promote entrepreneurship and economic growth.

Types of MSME Loan Schemes in India

Understanding different types of MSME loan schemes helps you choose the right one based on your requirement.

1. PMEGP Loan Scheme

The Prime Minister’s Employment Generation Programme is ideal for first-time entrepreneurs starting new businesses.

Key Features:

This scheme reduces the actual repayment burden through government subsidy support.

2. Mudra Loan (PMMY)

The Pradhan Mantri Mudra Yojana provides small-ticket loans under three categories:

  • Shishu – Up to ₹50,000
  • Kishore – ₹50,000 to ₹5 lakh
  • Tarun – ₹5 lakh to ₹10 lakh

It is best for small traders, startups, shop owners, and service providers who need smaller loan amounts without collateral.

3. CGTMSE Collateral-Free Loans

The Credit Guarantee Fund Trust for Micro and Small Enterprises helps MSMEs obtain loans without collateral.

This scheme is suitable for businesses lacking assets for mortgage.

4. Stand-Up India Scheme

The Stand-Up India Scheme promotes entrepreneurship among women and SC/ST categories.

  • Loan between ₹10 lakh to ₹1 crore
  • Supports new (greenfield) enterprises
  • Includes working capital component

5. PSB Loans in 59 Minutes

The PSB Loans in 59 Minutes platform enables quick online loan approval.

  • Loan up to ₹5 crore
  • Digital application process
  • In-principle approval within 59 minutes

It is suitable for businesses needing fast working capital.

MSME Loan Interest Rates in 2026

Interest rates depend on:

  • Scheme type
  • Loan amount
  • Credit score
  • Bank policies
  • Business profile

Generally, MSME loan interest rates range between 8% to 14% per annum.

Subsidy-based schemes like PMEGP reduce effective loan burden, while Mudra and CGTMSE-backed loans offer competitive interest rates.

Maintaining a good CIBIL score (700+) helps secure lower interest rates.

Eligibility Criteria for MSME Loans

Although criteria vary across schemes, common eligibility conditions include:

Basic Requirements:

  • Indian citizen
  • Age 18–65 years
  • Registered MSME (Udyam Registration)
  • Valid business plan

Financial Requirements:

For startups, a strong project report is essential.

Documents Required for MSME Loan

Prepare these documents before applying:

  • Aadhaar Card
  • PAN Card
  • Udyam Registration Certificate
  • Business registration proof
  • Bank statements (last 6–12 months)
  • Income Tax Returns
  • GST returns (if applicable)
  • Detailed project report

Complete documentation improves approval speed.

How to Apply for MSME Loan Online (Step-by-Step)

Applying online is simple and time-saving. Follow these steps:

Step 1: Register Under Udyam

First, complete Udyam Registration to officially classify your business as MSME.

Step 2: Choose Suitable Loan Scheme

Select scheme based on:

  • Loan amount needed
  • Whether you need subsidy
  • Your category eligibility
  • Collateral availability

Step 3: Check Online Eligibility

Most banks provide eligibility calculators. Enter turnover, loan amount, and credit score details.

Step 4: Fill Online Application Form

Provide accurate business and personal details. Ensure information matches documents.

Step 5: Upload Required Documents

Upload scanned copies of:

Step 6: Verification Process

Bank verifies:

  • Credit score
  • Financial statements
  • GST filings
  • Business viability

Step 7: Loan Approval and Disbursement

Once approved, you receive sanction letter and funds are transferred to your business account.

Common Reasons for MSME Loan Rejection

Understanding common mistakes helps avoid rejection:

  • Low CIBIL score
  • Incomplete documents
  • Unrealistic project projections
  • Poor bank transaction history
  • Applying under wrong scheme

Prepare properly before submitting your application.

Tips to Increase MSME Loan Approval Chances

  • Maintain good credit history
  • File GST and tax returns on time
  • Prepare realistic financial projections
  • Avoid multiple loan applications at once
  • Keep clear business purpose for funds

Financial discipline builds lender confidence.

Conclusion

MSME loan schemes in India provide structured and affordable funding options for entrepreneurs. Whether you are a startup founder or an existing business owner, schemes like PMEGP, Mudra, CGTMSE, Stand-Up India, and PSB Loans in 59 Minutes offer solutions based on your funding needs.

By understanding loan types, interest rates, eligibility conditions, and online application steps, you can make informed decisions and improve your approval chances. Proper documentation, a strong project report, and financial discipline are the key factors for successful MSME loan approval in 2026.

Government support combined with responsible financial planning can help your business grow steadily and achieve long-term success.

Frequently Asked Questions 

1. Which MSME loan scheme is best for startups?

For startups, PMEGP is ideal if you want subsidy support. Mudra loans are suitable for smaller funding needs. If you lack collateral, CGTMSE-backed loans are a good option. Choosing the right scheme depends on your business size and funding requirement.

2. Can I apply for MSME loan completely online?

Yes, many banks and government portals allow complete online application. You can submit documents digitally, track status online, and receive approval without visiting branches multiple times.

3. What is the minimum credit score required for MSME loan?

Most banks prefer a CIBIL score above 700. However, some government-backed schemes may consider slightly lower scores if your business plan and financial documents are strong.

4. Are MSME loans available without collateral?

Yes, schemes like Mudra and CGTMSE provide collateral-free loans. However, approval still depends on your creditworthiness and business feasibility.

5. How long does MSME loan approval take?

Approval time varies by scheme and bank. Digital platforms may provide in-principle approval within hours, while subsidy-based schemes may take several weeks due to verification and inspection procedures.