MSME stands for Micro, Small, and Medium Enterprises. These are businesses classified based on their annual turnover and investment in plant and machinery. In India, the classification is as follows:
Understanding the classification is important because MSME businesses are eligible for special schemes and financial assistance, including MSME loans with affordable interest rates.
Fixed Interest Rate:
A fixed interest rate remains constant throughout the tenure of the loan, regardless of any changes in market conditions. This offers stability in monthly payments.
Floating Interest Rate:
A floating interest rate is tied to a benchmark rate (such as the MCLR or Repo rate) and can change periodically. This means the interest can go up or down based on market conditions, which makes payments fluctuate over time.
This tool is perfect if:
Credit Score
Your credit score plays a vital role in determining the interest rate. A high credit score (above 750) usually qualifies for lower interest rates.
Loan Amount
The loan amount requested can influence the interest rate. Larger loans might carry a lower interest rate, while smaller loan amounts could have slightly higher rates.
Loan Tenure
Shorter loan tenures typically come with lower interest rates, while longer tenures may attract higher rates due to the extended risk for the lender.
Type of Business
The nature and risk profile of the business also affect the interest rate. Established businesses with a stable cash flow are more likely to receive a lower rate compared to newer businesses with less financial stability.
Government Schemes
Certain government schemes, like the PMEGP (Prime Minister’s Employment Generation Programme) or the MUDRA scheme, offer loans at subsidized rates for MSMEs.
Q1. How is MSME interest calculated?
MSME interest is generally calculated using either a simple interest formula or through EMI (Equated Monthly Installment). You can calculate it by multiplying the principal amount with the interest rate and time period, or use an EMI calculator for more accurate results.
Q2. What is the typical interest rate for MSME loans?
MSME loan interest rates typically range from 7% to 20% per annum, depending on various factors like the loan amount, tenure, and your credit score.
Q3. Can MSME loans be repaid early?
Yes, many lenders allow for prepayment or early settlement of MSME loans. However, some lenders might charge a penalty for early repayment.
Q4. Are MSME loans eligible for government subsidies?
Yes, under various government schemes such as the PMEGP, MUDRA, and CGTMSE, MSME loans can be obtained at reduced interest rates.