Micro, Small, and Medium Enterprises can avail MSME loans for the expansion of businesses or for the set-up of new enterprises. MSME, under Credit Guarantee Fund Scheme, provide collateral-free loans up to Rs 200 Lacs. Interest rates on MSME loans are between 8.65% and 16.25%. There is usually a limit on the maximum loan amount. This can go up to Rs.500 crore. However, some banks do not have any such limits. The repayment tenure for MSME loans can be up to 15 years. 

Micro, Small and Medium Enterprises (MSME) are classified into two Classes:

1. Manufacturing Enterprises– The enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the industries (Development and Regulation) Act, 1951) or employing plant and machinery in the process of value addition to the final product having a distinct name or character or use. Manufacturing Enterprises are defined in terms of investment in Plant & Machinery.

  • Micro Enterprises- Collateral Free Loans up to 25 Lacs
  • Small Enterprises- Collateral Free Loans Between 25 Lacs and 5 Crores
  • Medium Enterprises- Collateral Free Loans Between 5 Crores to 10 Crores

2. Service Enterprises– The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment and tools.

  • Micro Enterprises- Collateral Free Loans up to 10 Lacs
  • Small Enterprises- Collateral Free Loans up to 10 Lacs to 2 Crores
  • Medium Enterprises- Collateral Free Loans up to 2 Crores to 5 Crores

Eligible Lending Institutions:

The Banks / Financial Institutions, which are eligible under the Credit Guarantee Fund scheme, are scheduled commercial banks , comprising of 26 Public Sector Banks, 21 Private Sector Banks, 73 Regional Rural Banks (RRBs), 4 Foreign Banks and 9 other institutions i.e. Delhi Financial Corporation, Kerala Financial Corporation, Jammu & Kashmir Development Finance Corporation Ltd, Andhra Pradesh State Financial Corporation, Export-Import Bank of India, The Tamil Nadu Industrial Investment Corporation Ltd., National Small Industries Corporation (NSIC), North Eastern Development Finance Corporation (NEDFI) and Small Industries Development Bank of India (SIDBI).

Eligible Credit Facility:

The credit facilities which are eligible to be covered under the scheme are both term loans and/or working capital facility up to Rs.100 lakh per borrowing unit, that is collateral free and/or third party guarantee, to a new or existing micro and small enterprise. For those units covered under the guarantee scheme, which may become sick owing to factors beyond the control of management, rehabilitation assistance extended by the lender could also be covered under the guarantee scheme.

Guarantee Cover

The guarantee cover available under the scheme is to the extent of maximum 85% of the sanctioned amount of the credit facility. The guarantee cover provided is up to 75% of the credit facility up to Rs.50 lakh (85% for loans up to Rs. 5 lakh provided to micro enterprises, 80% for MSEs owned/ operated by women and all loans to NER including Sikkim) with a uniform guarantee at 50% for the entire amount if the credit exposure is above Rs.50 lakh and up to Rs.100 lakh. In case of default, Trust settles the claim up to 75% (or 85% / 80% / 50% wherever applicable) of the amount in default of the credit facility extended by the lending institution.

Tenure of Guarantee

The Guarantee cover under the scheme is for the agreed tenure of the term loan/composite credit. In case of working capital, the guarantee cover is of 5 years or block of 5 years.

Fee for Guarantee

A composite all-in Annual Guarantee Fee of 1.0 % p.a. of the credit facility sanctioned (0.75% for credit facility up to Rs. 5 lakh and 0.85% for above Rs. 5 lakh and up to 100 lakh for Women) is now being charged.