MSME Loan Schemes 2025: Types, Interest Rate, Eligibility & How to Apply

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MSME or SME loan schemes are designed to provide affordable credit to micro, small and medium enterprises. Different banking and financial institutions provide these loans.

The main objective of the loan under the MSME scheme is no collateral requirement and a very low interest rate. With these loans, businesses can purchase advanced machinery, upgrade technology and more.

Also Read: What is MSME and Why Is It Importance

There are various types of MSME loans available to businesses, depending on their requirements. Let us explore some types of loans.

Term Loans

A term loan is a type of SME loan scheme which is provided for a fixed period, typically between 1 and 5 years. With this loan, businesses can manage their operations, purchase machinery and more.

Government Schemes

To support MSMEs, the government of India offers various schemes, such as the Pradhan Mantri Mudra Yojana and the Prime Minister Employment Generation Program. Under this, businesses will get benefits such as lower interest rates, subsidies and favourable repayment terms.

Equipment Financing

This is another type of MSME loan scheme for new businesses to purchase machinery or equipment. Using this loan, businesses do not have to arrange the large upfront payment required to buy machinery.

Working Capital Loans

Working capital loans provide businesses with funds to manage daily operational expenses, including inventory purchases, employee salaries, rent and utility bills. They help maintain a steady cash flow and ensure uninterrupted business operations.

SIDBI MSME Loans

SIDBI MSME loans are designed to support micro, small and medium enterprises with their financial needs, including business expansion, technology upgrades, etc. These loans often come with competitive interest rates and flexible repayment options.

Before applying online for the MSME loan scheme, businesses need to meet the eligibility criteria.

• Businesses must be registered on the Udyam Registration portal.
• Businesses also need to be GST-registered.
• The business needs to be in the trading, manufacturing and service sectors.
• Applicants should have a credit score of 750 or higher to improve their eligibility.
• The business must generate a minimum annual income of ₹2 lakhs and maintain an annual turnover of at least ₹10 lakhs.
• A consistent repayment record and sound financial standing are essential for loan approval.
• The business should not have a loan default history with any bank or financial institution.
• The authorised signatory must be between 21 and 65 years of age.
• The applicant or authorised signatory should have at least three years of association with the enterprise and a minimum of five years of experience in the relevant business domain.

Businesses can easily apply for MSME loans online through banking or financial institutions. Here are the general steps to follow:

Step 1: Assess Loan Requirements

Before applying for an online MSME loan, identify your loan requirements. For instance, if the loan is to buy machinery or to expand the business. This will help you select the best MSME loan scheme.

Step 2: Check Loan Eligibility

After assessing your loan requirement, you need to verify if you meet the eligibility criteria. To get the loan, the business needs to meet certain criteria set by the officials. Non-compliance with these requirements can lead to loan rejection.

Step 3: Select MSME Loan Scheme

Once the eligibility criteria are met, you need to choose the MSME loan scheme type based on your requirement. There are various government and private schemes for MSME loans. Understand all the schemes and choose the one that fits your requirements.

Step 4: Gather Necessary Documents

After choosing the MSME loan scheme, you need to gather all the required documents, such as business registration details, identity proof, GST returns, etc. Ensure to keep all documents handy while visiting the bank.

Step 5: Loan Verification

Submit the loan form along with other documents to the bank representative. The lender will verify the information and assess your eligibility before approving or rejecting the loan application.

Step 6: Review Loan Agreement

Once the loan is approved, you will be required to sign the loan agreement. Carefully review the terms and conditions, including the interest rate, repayment tenure and other applicable charges, before accepting the offer.

Step 7: Disbursement of Loan Funds

After the agreement is completed, the loan amount will be disbursed to your account. You can then use the funds for the intended business purpose, such as purchasing equipment, managing working capital or expanding operations.

Also Read: List of Businesses That Come Under the MSME Sector

Here is the list of documents you require to apply for an MSME loan:

• Identity proof of the business owner, such as Aadhaar card, Voter ID, etc
• Address proof such as rental agreement, utility bills, etc
• Copy of Udyam registration certificate
• Copy of business GST returns
• Bank statements of the business
• Income tax returns
• Any additional documents required by the lender

The interest rate under the SME loan guarantee scheme depends on the lender type, loan scheme, borrower’s credit score and more. Below is the general interest rate and charges under the MSME scheme.

There have been new guidelines and updates for MSME loans following the 2025 Union Budget.

• The credit limit for the government-backed MSME loan scheme has been increased to ₹5 crore.
• There is a special term loan for women and SC/ST category entrepreneurs, up to ₹2 crore.
• The initiative has been taken to expand collateral-free loans through NBFCs and banks.
• There have been export grants and incentives for MSME exporters.
• The new loan disbursement platform integrated with IT or GST databases has been introduced.

Also Read: How the 2026 Budget Strengthens MSMEs

There are various government-backed MSME loan schemes available in India to meet the requirements of different business sectors. Here are some common MSME loan government schemes:

Pradhan Mantri Mudra Yojana (PMMY)

The Pradhan Mantri Mudra Yojana is a government scheme that provides Mudra loans to non-corporate, non-farm small and micro enterprises. The loan limit under this scheme is up to ₹20 lakhs. Small finance banks, commercial banks, NBFCs and other lenders provide these loans.

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

It is a government scheme in partnership with the Small Industries Development Bank of India. Under this scheme, businesses can obtain collateral-free loans from the banking and financial institutions.

Interest Subsidy Eligibility Certificate (ISEC)

This scheme is designed to support khadi institutions by providing affordable financing for their khadi programmes. Through this scheme, eligible institutions can access working capital loans at a subsidised interest rate of 4% per annum.

Prime Minister’s Employment Generation Programme (PMEGP)

PMEGP is a credit-linked subsidy scheme that supports aspiring entrepreneurs in urban and rural areas by providing financial assistance to establish new micro-enterprises and generate self-employment opportunities.

MSME Business Loan for Startups in 59 Minutes

This scheme enables eligible MSMEs and startups to obtain in-principle approval for business loans through an online platform in as little as 59 minutes. This ensures faster access to funds with a simplified application process.

Applying for a loan under the MSME scheme is crucial for the growth of small and medium businesses. With access to timely funding, entrepreneurs can focus on business growth, operational efficiency and long-term development. However, applicants must meet the prescribed eligibility criteria and submit the required documents to obtain the loan successfully.

Along with the MSME loan scheme, businesses also need to invest in an MSME insurance plan. This loan protects the enterprise against unforeseen risks such as property damage, theft, fire, natural disasters and third-party liabilities.

TATA AIG offers a range of small-business insurance plans tailored to your specific business requirements. For instance, our workers' compensation insurance protects employers against legal and financial liabilities arising from workplace injuries.

We also offer professional indemnity insurance, which safeguards professionals and businesses against financial losses resulting from claims of errors, omissions, negligence or breach of professional duty. Explore our website to know more about our commercial insurance plans.