MSME Loan Scheme 2025

1. remove barrier restrictions to formal funding 

1. lessen dependence on informal lending  

1. establish a stable MSME sector 

1. develop a robust MSME structure with competitive financial assistance 

1. affordable credit as the goal to further deliver growth, innovation and new employment sustainability opportunities. 

What is an MSME Loan? 

An MSME loan is a type of financing provided to Micro, Small, and Medium Enterprises (MSMEs) to support their business operations. These loans help entrepreneurs and business owners meet various needs, such as purchasing equipment, managing working capital, paying employee salaries, expanding operations, or covering other business expenses. Many financial institutions and banks in India offer MSME loans with varying interest rates and terms.

MSME Loan Interest Rates - Banks (2025) 

This table summarises the interest rates offered by major banks for MSME loans in 2025, which vary by lender and loan type.   

MSME Loan Interest Rates - NBFCs (2025) 

This table highlights the interest rates offered by major NBFCs for MSME loans, which are generally higher than banks due to risk and loan type.   

Key Highlights of MSME Loan Scheme

The following table summarises key details regarding interest rates, eligibility, required documents, application process, and types of MSME loans in 2025:  

Objectives of MSME Loan Schemes  

The key objectives of MSME Loan Schemes are: 

1. Improving Access to Finance: Help small businesses to connect with formal financial institutions by providing funds at reasonable interest rates and avoid dependence on informal and expensive finance. 

1. Reducing the burden of collateral: Assistance with collateral-free loans through credit guarantee schemes like the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). Making risk-averse banks and NBFC lend more freely.  Supporting entrepreneurship: Creation of self-employment for first-generation entrepreneurs, youth, women, and members of economically and socially disadvantaged communities through start-up loans and subsidized finance of schemes such as PMEGP.  

1. Supporting new age Technologies and Innovation: Allow enterprises to invest in new machines and innovative green technologies and digital tools to help improve productivity, quality and sustainability.   

1. Providing Policymaker with Regional Development Support: Financing projects that will industrialize rural and semi-urban areas in aspirational districts, creating jobs locally and reducing urban transfer.  

1. Creating jobs: Purposeful expansion of job creation in old and new sectors by supporting labour-intensive industries and nurturing rural entrepreneurship clusters. Providing Synergy to National Programmes: Supporting MSME’s financial readiness to exploit flagship programme initiatives like, Atmanirbhar Bharat, Make in India, and Start up India helps to globally position MSME's financially. 

Key Features of MSME Loan Scheme 2025 

The major characteristics of MSME Loan Scheme are as follows:  

1. Loan Amount Range: The loan amounts vary dependent upon the scheme: while MUDRA initiatives offer loans as small as Rs.50,000 under microfinance initiatives, larger programmes such as SIDBI project loans can extend to Rs.50 crore.  Government-backed schemes, namely PMEGP and PSB Loans in 59 Minutes offer loans that range between Rs.10 lakh and Rs.5 crore; hence a loan can be utilized by micro and larger enterprises. 

1. Interest Rates: There are differences in interest rates determined by the lending bank/NBFC, as there are no variable singular rates that apply across the schemes. Most rates are subsidized, depending on the various government initiatives. Khadi institutions at ISEC enjoy preferential NPA treatment at 4% p.a., while the Central Government bears the differential. 

1. Loan Tenure: Loans could be either of short-term (for working capital), medium-term (for technology upgradation), or long-term (for capital expenditure and expansions) nature depending upon the scheme. The range of tenures can be from 1-15 years.  

1. Collateral Free Support: Under CGTMSE, eligible MSMEs can avail of loans, without providing collateral, with guarantee cover from approximately 75% to 90%, based on the loan size and type of enterprise. 

1. Sectors Supported: Support is provided for all types of sectors, including manufacturing, services, trading, khadi, agro-based entrepreneurship and rural entrepreneurship. Backward and aspirational districts have some special incentives.  

1. Digital Applications & Processing: In this technology age, and by adopting technology driven platforms fully online for loans, like PMEGP MIS portal, Udyami Mitra, and PSB Loans in 59 mins loans enable the implementation of faster verification and loan applications, offering usability.  

Prime Minister’s Employment Generation Programme (PMEGP)

The Prime Minister’s Employment Generation Programme (PMEGP) is a government-sponsored flagship credit-linked subsidy programme which aims to create entrepreneurs and jobs in India's non-farm sector. 

The Khadi and Village Industries Commission (KVIC) implements and runs the scheme at the National level, with the support of State KVIC Directorates, State Khadi and Village Industries Boards (KVIBs), and District Industries Centres (DICs). PMEGP is one of the flagship schemes to support first generation entrepreneurs and micro enterprises. 

Objectives and Scope: The objective of PMEGP is to set up micro enterprises in the manufacturing, trading and service sectors to promote self-employment through sustainable livelihoods. PMEGP focuses its efforts on rural and semi-urban areas, as well as providing support for the weaker sections of society, women, SC/ST, OBC, minorities, ex-servicemen, and persons with disabilities. 

 Eligibility 

1.  Individuals over 18 years of age 

1. Self-help groups, charitable trusts, registered societies and cooperatives engaged in production 

1. Institutions registered under the Societies Registration Act, 1860 

1. Only new projects are considered; existing units and those that have already received subsidies from the government are not eligible. 

 Project Cost Limits 

1. Manufacturing sector: Rs.50 lakh 

1. Service/trading sector: Rs.20 lakh 

Margin Money Subsidy 

Entrepreneurs are eligible for a credit linked subsidy based on their category and project location. The range is from 15% to 35%: Urban- General Category: 15% Rural-General Category: 25% Urban- Special Categories (SC/ST/OBC/minorities/women/ex-servicemen/PH): 25% Rural- Special Categories: 35% 

How to apply for PMEGP Scheme

You can follow the instructions below to apply for PMEGP Scheme:  

1. Step 1- Check Eligibility: You must confirm that you (individual_SHG_trust_cooperative, etc.) are eligible to apply for the scheme. You must also make sure the project is a new unit in project mode. Existing units are not allowed. 

1. Step 2- Prepare Documents: Obtain your Aadhar card, PAN card, educational certificate, and project report. Collect photos, business details, and get scanned copies ready to upload. 

1. Step 3- Register on the PMEGP e-Portal: Go to the official PMEGP Portal (KVIC). Create an account and choose either an 'individual' or 'non-individual' applicant. 

1. Step 4- Fill out the Online Application: Include all personal details, project details, and loan and finance details. Upload scanned documents (Aadhar, PAN card, educational degree, project report, photos, business details). Submit your application and take note of your application ID. 

1. Step 5- Scrutiny of the Application: Your file will first be verified by either KVIC/KVIB/DIC or any government body. Then, it will be placed before the District Level Task Force Committee (DLTFC) for consideration and further decision. 

1. Step 6- Local Interview / Verification: If selected, the DLTFC officials may contact you directly by phone or email to appear for an interview / field verification. 

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

CGTMSE is a flagship initiative started by the Ministry of MSME and SIDBI to provide micro and small enterprises with collateral-free credit. The primary goal is to improve the access to finance that enables banks and NBFCs to lend to MSMEs without collateral, allowing first-time and small-scale entrepreneurs to access entry to financing. 

Objective and Purpose: CGTMSE provides loan guarantees on loans offered to MSMEs by participating financial institutions in the form of term loans and working capital. The scheme provides a credit guarantee which encourages lenders to provide credit to businesses that would have been characterised as high-risk as a result of lack of collateral or evidence of formal credit history.  

Guarantee Coverage and Loan Limits 

1. Guarantee coverage applies from 75% to 85% of the sanctioned amount of the loan applied for the vast majority of micro and small enterprises.  

1. Micro-enterprises with loans that do not exceed Rs.5 lakh typically have coverage of 85%.  

1. The scheme allows credit facilities to go up to Rs.5 crore depending on the nature of the business and the lending institution rules. 

1. Maximum guarantee coverage, coverages and premium chargers are governed by CGTMSE rules and changed from time to time on the official portal. 

Eligible Borrowers

Only Udyam-registered MSMEs are eligible to avail the scheme. Both new and existing entities are eligible to apply on the condition that they satisfy the eligibility criteria of the CGTMSE scheme and are sufficiently creditworthy with no default backing record with regard to the lending institution. 

Role of Member Lending Institutions (MLIs)

In the lending process, banks and NBFCs participating in the scheme and enrolled with CGTMSE are referred to as Member Lending Institutions (MLIs) and will apply for the guarantee of the loan.  

MLIs are responsible for conducting 

1. credit appraisal on applicants 

1. cost estimation 

1. verification of project viability 

1. sanction funds to an applicant 

1. pay the guarantee fee to CGTMSE. 

In the event of default, the MLI will recover the exposure according to the guarantee amount, therefore, presenting a minimum exposure and risk to the lender. 

How to apply for CGTMSE Loan 

The following is the step-by-step application guide for applying for the CGTMSE loan:  

Step 1: Approach a Registered Bank or NBFC 

1. The entrepreneur is the applicant for a loan, which can be sought at a Member Lending Institution (MLI), which can be either a Bank or an NBFC, who are registered with CGTMSE. 

1. Ensure that your enterprise is Udyam-registered, in order to satisfy the MSME qualifications. 

Step 2: Bank Appraisal and Due Diligence 

1. The Bank is going to conduct a credit appraisal or assessment checking the viability of the business; repayment capacity; and financial history. 

1. You need to submit the following documents-Udyam registered certificate; identity and address proof; financial statements; project report; or other additional documents required by the Bank. 

  Step 3: Send forward for Guarantee Coverage 

1. When the assessment is confirmed satisfactory for preliminary sanction, the Bank would then send the loan proposal to CGTMSE, to check for collateral-free guarantee coverage. 

1. The guarantee fee would be paid upfront by the Bank on behalf of the borrower. 

 Step 4: Issuance of Guarantee Certificate 

1.  CGTMSE, on satisfaction of the loan proposal would issue a Guarantee Certificate, which the Bank will. 

1. The amount of coverage is normally around 75%–85% of the loan amount, depending upon the type of enterprise and the loan amount. 

 Step 5: Loan Sanction and Disbursement 

1. When the guarantee certificate has been issued, the Bank then formally sanctions the loan. 

1. Loan proceeds would then be disbursed to the entrepreneur's transaction account. 

Step 6: Tracking and Monitoring 

1. The Bank would account the loan disbursement in the CGTMSE portal. 

1. Both parties can track the loan through the portal as well as all repayments, which would be also updated by the Bank. 

Step 7: Default Management (if applicable) 

1. In case of borrower default, CGTMSE compensates the bank for the guaranteed portion, reducing lender risk. 

1. Borrowers are required to follow regular repayment schedules and maintain compliance with bank and CGTMSE guidelines. 

Small Industries Development Bank of India (SIDBI) Support

SIDBI is the quintessential financial institution for the promotion, financing, and development of micro, small and medium enterprises (MSMEs) in India. It operates as a direct lender and refinancier to banks and NBFCs with a mission to enhance access to credit, foster modernization, and catalyze sustainable growth among MSMEs. 

Objective and Scope: SIDBI extends term finance, working capital finance, machinery finance, project finance, and green finance. It supports new and existing MSMEs across manufacturing, services and trading. SIDBI focuses extensively on modernization, technology adoption, sustainability, and competitiveness, in line with national programs such as Atmanirbhar Bharat and Make in India. 

Other Relevant MSME Loan Schemes

The table below summarizes the objectives, eligibility, loan details and application process for other MSME Loan Schemes: 

Benefits of MSME Loan Scheme

The Primary Advantages of MSME Loan Scheme are as follows:   

1. Financial Inclusion: MSME loans improve access to formal lending for entrepreneurs who would otherwise turn to informal and high-interest borrowing options; allowing economic opportunities to be less inequitable. 

1. Less Collateral: Schemes like CGTMSE provide collateral-free loans and lessen the difficulty for first-generation entrepreneurs who are not always able to depend on personal or family owned assets. 

1. Subsidised Interest Rates: Some schemes like PMEGP and ISEC have allowed subsidised interest rates or interest subsidies that ameliorate a burden for small enterprises. 

1. Faster Loan Approvals: New digital-first schemes like PSB Loans in 59 Minutes have expedited credit delivery and allow businesses to access working capital and term loans almost instantaneously. 

1. Technology Adoption & Modernisation: Schemes like CLCS-TUS and SIDBI’s green finance two schemes that promote the adoption of modern machinery are important to greater productivity, efficiency, and competitiveness information about access and affordability. 

1. Employment Generation: MSME loans allow new businesses to start or expand and add to job availability for people in rural and urban areas. 

1. Access to Capital for Enterprise Growth: Businesses access a working capital loan and project loan allowing them to increase production or diversify products/services and access new markets. 

1. Additional Support for Marginalised Groups: Many schemes guarantee some higher subsidy and preference for women and SC/ST, OBC and rural entrepreneurs enabling the greater reach of capital and allow for less inequitable economic opportunities. 

Challenges & Considerations 

Despite the advantages, MSME loan schemes face operational and systemic challenges that may affect accessibility and efficiency. Recognising these helps policymakers and entrepreneurs navigate the ecosystem more effectively. The key challenges are: 

1. Lack of Awareness: There is a significant gap in MSME awareness of what schemes exist, eligibility criteria, and application processes, particularly in rural and semi-urban areas. 

1. Credit History Dependence: Banks and NBFCs are reliant on past credit history and depending on the circumstances first-generation entrepreneurs or entrepreneurs with little or no financial documentation may face delays or rejections. 

1. Delay in Disbursement of Subsidies: Schemes like PMEGP and ISEC have separate approval processes that can face delays in getting margin money or interest subsidies. 

1. NPAs in Collateral-Free lending: Although CGTMSE has assumed the risk of lenders increasing the risk of NPAs due to the absence of collateral, entrepreneurs may fail due to financial mismanagement. 

1. Complex Documentation: MSMEs must submit identity, address, Udyam registration, GST Number, project reports and multiple documents can be overwhelming for small entrepreneurs who may submit applications with errors or general, application and expedite, delays. 

1. Digital Literacy and Infrastructure: Submission through online portals (e.g. PSB 59 Minutes, Udyami Mitra) requires some level of digital literacy and comprehension, as well as reliable internet access, otherwise applications may face similar risks of delayed or lost applications. 

1. Sectoral & Regional Bias: Some schemes exclude or limit other sectors, specific rural or urban locations, or marginalised categories.  Some MSMEs may find themselves excluded from access to funds. 

A good credit score can help you secure lower interest rates on loans and credit cards.

Get Free Credit Score