The term MSME stands for Micro Small and Medium Enterprise, which was introduced by the Govt. of India for the promotion and development of the MSME sector. MSMEs contribute more than 30% of India’s GDP along with 50% of the nation’s total exports. As per the MSME Development Act of 2006, MSMEs were divided into two main categories named as Manufacturing and Service Enterprises. Below discussed are the classification of Micro, Small and Medium Enterprises, as per the new definition based on the annual turnover:
• Micro Enterprises: Annual turnover is up to Rs. 5 crores
• Small Enterprises: Annual turnover is up to Rs. 5 crores and less than Rs. 75 crores
• Medium Enterprises: Annual turnover is above Rs. 75 crores and less than Rs. 250 crores
Usage of MSME Loan
Collateral-free MSME loans are offered up to Rs. 2 crore with repayment tenure of up to 5 years which may exceed, as per business requirements and applicant’s profile. MSME loans are mainly used for various business expansion purposes, such as to meet day-to-day business requirements, enhance cash flow, buying land/property, purchasing raw materials, equipment, machinery and goods, stocking inventory, hiring/training staff, buying fleet, and much more.
Minimum CIBIL score required for MSME Loan
Individuals, MSMEs and self-employed professionals often require business loans and MSME loans to meet urgent cash requirements or working capital needs. For availing funds at lower interest rates, business entities need to maintain a good CIBIL score (700 or above), as a high credit score depicts the borrower as creditworthy and less risky to lend to.
To check credit score online for free you need to mention basic details, such as your name, date of birth, PIN code, PAN card, mobile number, etc. You can download your free CIBIL report online by using the same details. Also, do check your CIBIL score and Company Credit Report (CCR) regularly for errors and resolve them at the earliest by raising a CIBIL dispute online via Consumer Dispute Resolution Program at TransUnion CIBIL’s official website.
Importance of CIBIL score for Self-employed Professionals
Good CIBIL score is equally important for Self-employed professionals, as it is for MSMEs. High CIBIL score, which shall be as close to 900, highlights the credit responsible behaviour of the applicant and makes it easier for the lender to offer funds. Self-employed professionals broadly include a wide variety of professionals that include CAs, doctors, architects, lawyers and other business entities.
Most of the private and public sector banks and NBFCs check your CIBIL score before any business or MSME loan approval. If they find you at low risk then only they approve your loan application. Any CIBIL score of 650 or below is considered bad by financial institutions, so maintain it a bit higher to be able to avail funds. Higher your CIBIL score is; lower becomes the interest rates offered by banks and NBFCs.
CIBIL MSME Rank (CMR)
CIBIL MSME Rank (CMR) is a credit default-predictor model for MSMEs generated by TransUnion CIBIL that offers credit behaviour analysis of the borrowing entity. CMR is a grade assigned to the MSMEs based on their creditworthiness and payment history. This grade scale ranges from 1-10, wherein CMR-1 considered and assigned to the least risky MSME, whereas CMR-10 is for the most risky MSME with maximum risk. CMR forecasts the possibility of default over a period of 1 year of the borrower. Higher the CMR of MSMEs (preferably 4-1), higher the probability of default associated. MSMEs with CMR as close to Rank 1 shall be considered on priority by the lending institutions.
Note: The CIBIL MSME Rank is applicable only to the MSMEs and companies with the loan exposure of Rs. 10 lakh to Rs. 50 crores.
Govt. Loan Schemes available for MSMEs
There are various loan schemes initiated by the Indian Govt. under which applicants with low CIBIL scores or even no credit score can also avail funds if they clear the eligibility criteria as defined by the lender:
• MUDRA Loan under PMMY (Pradhan Mantri Mudra Yojana)
• Loans under SIDBI (Small Industries Development Bank of India (SIDBI))
• Prime Minister’s Employment Generation Programme (PMEGP)
• Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
• Stand-up India
• Credit Guarantee Scheme or Credit Linked Subsidy Scheme
• Pradhan Mantri Rozgar Yojana (PMRY)
• PSB Loans in 59 minutes
As these institutions do not check the applicant’s CIBIL score, therefore the interest rates offered are at a higher side. Even the loan amount offered is as per the applicant’s profile and not as per the amount desired.
Good CIBIL score of 750+ makes you eligible to avail business loan from various leading financial institutions, such as private and public sector banks, NBFCs, Cooperative Banks, Regional Rural Banks (RRBs), Small Finance Banks (SFBs), and Micro Finance Institutions (MFIs). Besides MSMEs and Self-employed professionals, business loan can also be availed by Startups, Entrepreneurs, Sole Proprietorships, Private and Public Limited Companies (PLCs), Partnership Firms, Limited Liability Partnerships (LLPs), and various other business entities engaged only in the manufacturing and services sectors.