Introduction

MSMEs stand for Micro, Small, and Medium Enterprises. Created by the MSMED Act of 2006, MSMEs represent the foundation of India’s manufacturing, exports, and services sector. They play a major role in the Indian economy by creating local employment, giving rise to ancillary industries, and solving local problems with innovative solutions. Their significant contribution to the Indian economy is underscored by the fact that they accounted for 30% of India’s GDP in 2022-23. Let us understand the categorization of MSMEs, investment and turnover calculation, sector-specific contribution, challenges faced by MSMEs, and how to apply for msme loan online.

Categorization of MSMEs

As per the MSMED Act of 2006 and revised guidelines, an enterprise is grouped into a “micro enterprise” if its investment is up to ₹2.5 crore and it has a business turnover of up to ₹10 crore. For small enterprises, the criteria is that the investment and the turnover should not exceed ₹25 crore and ₹100 crore, respectively. A “medium enterprise” is defined as an enterprise that has an investment up to ₹125 crore and a turnover up to ₹500 crore. Compared to the original classification of MSME businesses, the new classification has increased the investment limits by 2.5 times for micro, small, and medium enterprises. Also, the turnover limits have been doubled for small and medium enterprises. An increase in the limits provides greater flexibility to businesses by providing them more opportunities and access to credit.

If an MSME business crosses the threshold for either of the two criteria of turnover or investment for its current category, then it will be placed in the next nigher category. Only if an MSME business goes below the set threshold for both criteria will it be downgraded to a lower category. For instance, if business X is classified as a “micro enterprise’ but this year, its business turnover is ₹11 crore, then it will no longer be a “micro enterprise” but upgraded to a “small enterprise.” However, if business Y is currently registered as a “medium enterprise” and in this year, its investment and turnover goes down to ₹24 crore and ₹95 crore, respectively, then it will be re-categorized under the bucket of “small enterprise.” Also, for classifying an MSME business, only the PAN matters and not the GSTIN. An MSME business may have different units with multiple GSTINs registered against the same PAN. The aggregate values of investments and turnovers for all units under the same PAN will be considered while deciding the MSME categorization.This serves as a composite criteria rule for classification mandated by the government of India. This straightforward categorization of MSMEs represents a seamless compliance with the rules and process related to registration of an MSME enterprise.

Investment and turnover calculation

Investments refer to capital invested in tangible assets such as plant, machinery, and equipment other than land and building. For the calculation of investments, the ITR filed for the previous financial year is referred. If the MSME is a startup and has not filed any ITRs previously, then the self-declaration of the promoter will work. However, after the business files its first ITR, the self-declaration cannot be used for investment calculation after 31st March of the financial year in which ITR was filed. In case of a new enterprise without a previously-filed ITR, the purchase value of plant and machinery will be considered without the GST in order to calculate investment value.

The business turnover shall include all revenue generated from domestic sales of goods and services while excluding export sales. Enterprises that do not have a PAN can self-report their turnover and export turnover up to 31st March 2021. After that, having a PAN and GSTIN is mandatory for any MSME business. 

Along with the MSME categorization, the investment and turnover values are important to determine msme loan eligibility for government subsidy loan, unsecured msme loan, or enterprise loan.

Sector-specific contributions of the MSME sector

MSMEs contribute immensely to the manufacturing, service, and export sectors as explained below – 

1. Manufacturing

MSMEs account for around 45% of the manufacturing output of India. Industries such as textiles, automobile, leather, etc. procure raw materials and other components from the MSME businesses. Manufacturers in the MSME sector are small and nimble enough to try several innovative business practices for cost reduction. Such flexibility and sustainable business practices transcend beyond the MSMEs and move to large businesses improving overall business sustainability and innovativeness.

2. Service

Around 24% of the GDP is accounted for by MSMEs in the services sector. MSMEs offer different services in the areas of financial services, retail, tourism, supply chain and logistics, and IT solutions. Services sector in MSMEs also employs a large population contributing to the overall employment at the local level.

3. Exports

As of May 2024, more than 45% of all exports have been contributed by MSMEs. MSMEs export their products in business such as pharmaceuticals, gems, handicrafts, textiles, and jewelry. MSMEs also help increase India’s foreign exchange reserves by their export activities. Support by EXIM bank may provide further incentives to MSMEs to increase their exports in the future. 

Challenges faced by MSMEs

1. Financial challenges

MSMEs face multiple hurdles in obtaining access to finance not just in India but also in the world. It is estimated that only around 16% of the MSMEs receive funding on time, hindering long-term investments and business expansion. When they do have access to finance, the msme loan interest rate is high and becomes unaffordable for the business. Banks and financial institutions have lots of paperwork in their loan application and unless the business is established with robust financials, traditional banks usually do not extend credit to such MSMEs.

2. Regulatory issues

Increased compliance and regulatory pressures have forced MSMEs to comply with additional regulations that represent additional compliance costs. The taxation structure becomes convoluted for MSMEs along with rules pertaining to labor and human resources. MSMEs cannot afford to hire specialists in business areas such as operations, marketing, finance, and human resources, and usually, they prefer to be out of the organized system of working rather than being a part. 

3. Challenges related to skills

MSMEs in India lack technical skills because they cannot afford to employ workers with updated skills. They have to rely on unskilled or semi-skilled labor to get the work done that results in poor quality of production. 

How to apply for an MSME loan online 

Since access to financing is the most important challenge faced by an MSME, you can apply for an MSME loan online on Lendingkart platform. Here are the steps to be followed – 

1. You need to check your eligibility for an enterprise loan on Lendingkart by sharing personal details and business details. This hardly takes 2 minutes.
2. Once your msme loan eligibility check is done, you can complete your loan application by uploading documents such as PAN card, Aadhar card, Bank statement, business registration proof, partnership deed (for partnerships) and company PAN (for private limited or LLCs) in 24 hours.
3. In the next 24 hours, you will receive a customized loan proposal from Lendingkart after a thorough evaluation of your application. The loan offer will contain the sanctioned amount, interest rates, and other requirements. After you e-sign and send the loan agreement to Lendingkart, you will receive the funds in your bank account in the next 24 hours.
4. Utilize the funding and expand your business!

Lendingkart offers MSME loans with amounts from ₹50,000 – ₹2 crore, loan tenure between 1 month – 5 years, and interest rates between 1% – 2% per month. Lendingkart offers unsecured msme loan and so you need not worry about collateral. This frees up your assets to be utilized for your business. Also, the entire process from eligibility check to disbursal is completely online which presents a hassle-free experience of availing finance for your MSME. 

---