MSME Working Capital Loan

Micro, small and medium enterprises (MSMEs) in India have diversified financial needs. However, entrepreneurs often face challenges to acquire funding from leading financial institutions, mostly due to high-risk perception and collateral requirements. Many financiers offer a range of MSME working capital loans to eligible entrepreneurs to address this financial gap.

The said financial products are collateral-free loans given to small business owners, startups, and women entrepreneurs to help them meet their working capital needs. As these are unsecured loans, they come with simple eligibility criteria and documentation compared to most other loan types.

However, the exact features of these loans differ depending on the financier offering them. The Indian Government has introduced several schemes and policies such as Mudra Loan, PMEGP, and CGTMSE for MSMEs to account for working capital requirements.

Entrepreneurs and suppliers can also access tailor-made working capital solutions from KredX to address their funding requirements.

Which Entities Are Called MSMEs In India?

Previously, an enterprise was classified as an MSME depending on whether it was engaged in manufacturing, production, or services. This definition was later changed on 13 May 2020 as per the Atmanirbhar Covid-19 relief package announcement.

According to this announcement, businesses are classified based on investment and annual turnover, making the definition uniform across all sectors.





< Rs. 1 crore

< Rs. 5 crores


< Rs. 10 crores

< Rs. 50 crores


< Rs. 20 crores

< Rs. 100 crores

Here are some of the most popular funding schemes for MSMEs -

A. Government Schemes For MSMEs

The Ministry of Micro, Small and Medium Enterprises under the Government of India has introduced several schemes and policies to provide working capital for MSMEs in India, such as:

Mudra Loan

Under the MUDRA (Micro Units Development & Refinance) scheme, non-farming and non-corporate micro and small enterprises can avail loans of up to Rs. 10 lakh. Under this financing option (also called the Pradhan Mantri Mudra Yojana), funds are allocated through three schemes:

  • Shishu (up to Rs. 50,000)
  • Kishore (up to Rs. 5,00,000)
  • Tarun (up to Rs. 10,00,000)

Credit Guarantee Funds Trust for Micro and Small Enterprise

The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGTMSE) was launched by the Indian Government to make collateral-free credit available to small and medium enterprises. Under this scheme, new or existing MSEs can get loans up to Rs. 10 lakh backed by CGTMSE’s guarantee.

Prime Minister’s Employment Generation Programme

Prime Minister’s Employment Generation Program (PMEGP) is an integrated subsidy scheme under Prime Minister Rojgar Yojana and Rural Employment Generation program.

It offers funds for projects with a maximum cost of Rs. 25 lakh for the manufacturing sector and Rs. 10 lakh for the service sector. However, businesses that are already a beneficiary of government-based subsidy schemes do not qualify for this scheme.

Covid-19 Relief And Atma Nirbhar Package

On 13 May 2020, the Government of India announced the Covid-19 Relief and Atma Nirbhar package to provide emergency credit during an economic downturn. Under this, businesses with an outstanding loan of up to Rs. 25 crore and a turnover of Rs. 100 crore are eligible to avail funds. It comes with a 4 year tenure and has a moratorium of 1-year.

B. MSME Loan Offered By Financial Institutions

Lending institutions in India offer a range of MSME loan products. Some of the most popular ones include:

Cash Credit Loan

Financial institutions can offer a line of credit in which the borrower gets a certain amount of cash approved to make business payments. Interest is charged only on the used cash amount, which saves a lot of money in the long run.

Trade Credit

Many suppliers provide goods/services to businesses on credit. This can be a great source of working capital finance, but suppliers usually provide this only after a long-term association. Generally, they check a company’s creditworthiness, liquidity, profit, and payment records before extending trade credit.

Secured Term Loans

If entrepreneurs are sure about their repayment capacity, they can use fixed assets as collateral to avail secured loans from banks and NBFCs. Loans against residential, commercial, or industrial property are some popular secured term loans.

Micro and small businesses in India have several options when it comes to accessing funds for their operations. Entrepreneurs can either apply for a short-term or long-term loan depending on the need for instant and flexible loans or low rates.

Other than these, as an entrepreneur, you can also opt for an alternative financing option such as invoice discounting from KredX. Such a funding option allows businesses to release capital tied up in accounts receivable and helps to meet their working capital requirements.

At KredX, we offer invoice discounting facility to companies to access funds that would otherwise remain inaccessible. Also, there is no collateral involved in this type of fund, and one has to repay the loan amount only after receiving payment from clients. Collectively, these features work in favour of MSME owners and help them address issues related to the operating capital gap with greater ease.


Generally, borrowers need to supply the following documents to get MSME loans in India:
  • KYC documents (ID and address proof)
  • Bank account statements
  • Proof of ownership of the business
  • Profit and loss statement
  • IT returns

The eligibility criteria for MSME loans can vary across financial institutions. Usually, you will need to be in a certain age bracket, have a healthy credit score, and have a regular source of income with zero defaults.

There are several working capital loan schemes offered by various lending companies that require zero collateral. Moreover, financing options such as invoice discounting and trade credit loans have no such requirements.