What is MSME Loan? Meaning, Types, and Its Benefits
Published on : March 18, 2024

Micro, small, and medium-sized businesses, or MSMEs, are essential to economic development and corporate expansion because they are the backbone of India’s industrial landscape. Nevertheless, these businesses frequently encounter obstacles, especially when seeking sufficient funding to support their growth.

This is where MSME loans prove useful, acting as these businesses’ essential lifeline. Let’s examine more about MSME loans in detail, including what they are, why they matter, and how they affect India’s economy.

What is MSME Loan?

MSME loan is a financial tool created specifically to meet the financing requirements of MSMEs.

These loans are made to accommodate a range of requirements, such as expansion plans, working cash, infrastructure growth, adoption of new technologies, and more.

Through the timely provision of funding, MSME loans enable businesses to expand their operations, improve productivity, and make a substantial contribution to economic growth.

Types of MSME Loans

Below are the different types of MSME loans that meet a range of demands.

Working capital loans

They are used to fund day-to-day business expenses, purchase goods, maintain a healthy cash flow, etc.

Term loans

Used for long-term expenditures including capital-intensive projects, infrastructure expansion, and the purchase of machinery.

Financing for equipment

Particularly for buying new technology, machinery, or equipment.

Government-Sponsored Schemes

MUDRA loans, SIDBI loans, and other specialized loan programs are examples of government-initiated loan programs that support the expansion of MSMEs.

Cash Credit Loans

With the help of these loans, firms can access a revolving line of credit and take out money as needed up to a pre-established credit limit.

Overdraft Loans

MSMEs can easily and adaptably meet their short-term financial needs and sustain business operations with overdraft MSME loans.

Benefits of MSME loans

Promotes Entrepreneurship

Some MSME loans offer prospective entrepreneurs the money they need to make their ventures a reality. This encourages innovation and entrepreneurship, which propels economic expansion and employment creation.

Promotes Export Potential

MSME loans give small and medium-sized businesses an opportunity to explore foreign markets and develop their export potential. Through financing export-focused endeavors, these loans support foreign exchange profits and international market integration.

Reduced Turnaround Time

The turnaround time is the amount of time that passes between a loan application and approval. The lender must gather and confirm your information in the early phases of the loan application procedure. Applying for a loan on paper can take a long time. If you arrive at the lender’s office with the incorrect set of documents, the turnaround time may be significantly accelerated.

Convenient Loan Application Process

The ability to begin the loan application process without having to physically visit the lender’s office is one of the main advantages of digital MSME loans. All you need is a reliable internet connection and your phone to apply for a digital business loan. It only takes a few clicks to complete the simple online application process. Moreover, you can apply for a digital MSME loan whenever and wherever it’s convenient for you, unlike the paper-based loan application process. Reputable lenders such as LoanTap give a user-friendly website with all the information you would require to begin the digital MSME loan application procedure.

Role of MSME in India

MSMEs make substantial contributions to industrial output, export revenue, and job creation and are the foundation of the Indian economy. They encourage innovation, entrepreneurship, and regional development.

The government hopes to promote economic growth, lessen regional inequities, and foster business growth by supporting MSMEs through programs like MSME loans.


MSME loans are essential to developing and sustaining Micro, Small, and Medium-Sized Businesses in India. Through the efficient provision of financial support, these loans enable MSMEs to reach their maximum potential, propelling economic advancement and promoting equitable development throughout the country.

MSMEs stand out as the engines of growth in India’s dynamic business environment, propelling innovation, generating job opportunities, and making a substantial GDP contribution. However, in order for these businesses to reach their full potential, they need sufficient funding, which is where MSME loans come in.

These businesses might steer toward sustained growth and wealth by comprehending the intricacies of MSME loans and utilizing them wisely.


How can I apply for an MSME loan?

Ans: Visit the official website of LoanTap. Select MSME loan from the menu. Click ’Apply now’ and enter your personal information, such as contact details and salary details, and your business’ details. Submit the required documents. After the verification process, your loan amount will be disbursed within 24-36 hours.

What are the eligibility criteria for MSME loans?

Ans: To apply for an MSME loan via LoanTap, the applicant should be a citizen of India. The business should have been successfully running for a minimum of 2 years and have filed an ITR for at least 1 year. The applicant should be above 21 years of age. The credit score should be higher than 700. There should be no record of default in your or your business’ credit history.

How do MSME loans contribute to economic development?

Ans: MSME loans are crucial for promoting economic development since they promote entrepreneurship, provide employment, boost industrial output, and foster innovation. These loans enable MSMEs to build their businesses, boost GDP, and promote inclusive development in a range of industries and geographical areas.

Can MSME loans be used for working capital requirements?

Ans: Yes, MSME loans can be used to fulfill working capital requirements such as purchasing inventory, managing cash flow, meeting operational expenses, etc.

What is the repayment tenure for MSME loans?

Ans: The repayment tenure for MSME loans can be either long-term or short-term, based upon the nature of the loan and the borrower’s preferences. It typically varies from a few months to several years.