Last updated 12 Nov 2026
An MSME in India can borrow through regular bank and NBFC business loans, through government-backed schemes such as MUDRA, PMEGP and Stand-Up India, and, for eligible micro and small units, through loans covered by a credit guarantee under CGTMSE that lets the lender lend without collateral. The right route depends on your size, how long you have operated, the amount you need and what security you can offer.
MSME stands for micro, small and medium enterprise, and registration on the Udyam portal is commonly asked for. Each lender and each scheme sets its own rules, so treat this guide as a map and confirm details with the lender or the scheme's official site. See the MSME glossary entry for the term.
The main funding routes
MSME funding options
| Route | What it is | Who it suits | Security |
|---|---|---|---|
| Term loan from a bank or NBFC | A lump sum repaid in EMIs | Expansion, equipment, premises | Secured or unsecured, depending on the lender and amount |
| Working capital (cash credit, overdraft) | A limit you draw and repay | Businesses with stock and receivables | Usually stock, receivables or property |
| Invoice or bill discounting | Cash against unpaid invoices | Sellers to larger buyers | The invoice itself |
| Equipment finance | Loan against the machine being bought | Manufacturers and service units | The machine |
| MUDRA | Small loans for micro enterprises, offered through banks and other lenders | Micro units, shops, small service providers | Described by the scheme as collateral-free; confirm with the lender |
| CGTMSE-backed loan | A loan where the lender is covered by a credit guarantee trust | Micro and small enterprises without collateral | No collateral or third-party guarantor where the cover applies |
| PMEGP | A government subsidy-linked scheme for new units | First-time entrepreneurs | Scheme rules apply |
What CGTMSE does
According to the CGTMSE website, the Credit Guarantee Fund Trust for Micro and Small Enterprises was set up by the Ministry of MSME and SIDBI to encourage lending to micro and small enterprises. It provides credit guarantee cover to lending institutions on loans given without collateral or a third-party guarantor. It does not lend itself. The site states that the ceiling of credit guarantee coverage was increased to ₹10 crore. Your lender, not you, applies for the cover, and a lender may still decide not to use it, so ask whether your loan can be covered. The CGTMSE loan page and the glossary explain more.
MUDRA, PMEGP and Stand-Up India
MUDRA loans are small loans to micro enterprises, offered through banks and other lenders, and graded into bands by amount. We do not quote the bands or limits here. Check them on the official MUDRA site (mudra.org.in) before relying on them. See MUDRA loans. PMEGP supports new units with a subsidy-linked loan; whether it is open and on what terms changes by year, so check the official portal. Stand-Up India was meant for women and borrowers from scheduled castes and tribes setting up a new enterprise. The original scheme period ended in March 2025 and a revamped version was announced in March 2026, so check with the lender or the scheme site whether it is open. Confirm limits and eligibility with the lender or the scheme site.
What lenders look at
- Business vintage and Udyam registration, if applicable.
- Bank statements for the last six to twelve months, with steady credits.
- GST returns and income tax returns that match your account.
- Credit history of the business and of the owners (CIBIL or another bureau).
- Existing obligations and the share of income they take.
- For secured loans, the property or asset papers and valuation.
A worked example of preparation
A small packaging unit with an annual turnover of ₹80 lakh wants ₹15 lakh for a new machine and a little working capital. Its owner pulls twelve months of bank statements, the last two years of ITR and GST returns, the machine quotation, and a one-page plan showing the order book. The lender compares the proposed EMI with the monthly cash surplus. If the EMI would take too large a share of surplus, the lender may lower the amount or lengthen the tenor. A unit with the same numbers but statements that do not match its GST turnover will often be declined or asked for more. Preparation is as decisive as the numbers.
How to apply
- Decide the purpose and the amount, with a quotation or plan.
- Gather your KYC, business proof, Udyam certificate if you have it, bank statements, GST and ITR.
- Check your credit report and fix errors.
- Compare your details with lenders' published criteria before you apply.
- Ask each lender for the Key Fact Statement and compare offers on the APR.
LOANZ 360 is a loan aggregator, not a lender. It compares your details with each partner lender's published eligibility criteria before any application, prepares an internal credit assessment summary, and one advisor follows your file. The lender decides, prices and pays out into your account. See the MSME loan page and the enquiry form.
Frequently asked questions
What is the difference between MSME and a business loan?
MSME is a classification of the enterprise by size. A business loan is the product. Lenders may have MSME-specific loans with scheme support, but any business can apply for a regular business loan.
Do I need Udyam registration to get an MSME loan?
Many lenders and schemes ask for it, but not all. Registration also helps you access scheme benefits. Ask your lender what it needs for your loan.
Can I get an MSME loan without collateral?
Yes, in some cases. Unsecured business loans exist, and loans covered by the CGTMSE credit guarantee are given without collateral to eligible micro and small enterprises. Approval and pricing depend on the lender's assessment.
Who applies for the CGTMSE cover, me or the lender?
The lender. According to CGTMSE, it extends cover to lending institutions on loans without collateral or a third-party guarantor. Ask your lender whether it covers the loan under the scheme.
Is PMEGP open this year?
Scheme terms and availability change. Check the official PMEGP portal or ask a bank branch.
How long does an MSME loan take to get?
It depends on the lender, the loan type and how complete your documents are. Secured loans with valuation and legal checks take longer than small unsecured ones. Ask the lender for a timeline.
Related reading: Business loan rejection reasons, Bank or NBFC for a business loan, Business loans for startups, Working capital loan guide, Loan documents and KYC, MSME loan, Government loan schemes, CGTMSE loan, Udyam and MSME glossary.
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