MSME Loan & SME Loan EMI Calculator

Loan Amount

1 lac

2 Cr

INR

Tenure

6 Months

36 Months

Months

Interest Rate

1%

21%

%

Principal Amount

Rs.1,00,000


Interest Amount

Rs.291


Monthly EMI

Rs.16,715

Total Amount Payable:

Rs.1,00,291

MSME is the collective term for micro, medium and small enterprises, and there is a separate ministry for MSMEs within the government of India. MSMEs not only generate employment but account for 45% of the country’s manufacturing facilities and contribute 8% of the gross domestic Product (GDP) of the country. MSMEs have large export volumes and contribute 40% of the exports of the nation to other countries. MSMEs came into being with the formulation of the MSMED (micro, medium and small enterprises development act in 2006. Until then, MSMEs were mostly known as small and medium-scale industries, and the criteria for classifying industries into small and medium were also not clearly defined. 

MSMEs have a regular need for loans, and there are several lenders available. The businesses can even try out the EMI calculator to first examine whether a loan and its calculated EMI are payable and fit into the monthly budget.  

It is important to understand the different criteria on which micro, medium and small enterprises are classified to get an idea about the business loans they are eligible for. In addition to the criteria for classifying MSMEs by the MSMED act of 2006, a bill was introduced in 2018 that further classified MSMEs on the basis of their annual turnover. The criteria have been tabulated below as a ready reckoner.

Type of enterprise

As per the MSME Act of 2006

As per the 2018 Bill

Manufacturing sector

Service sector

All Enterprises

Investment for machinery

Investment for equipment

Annual turnover

Micro 

Upto Rs 25 lakhs

Upto Rs 10 lakhs

Upto Rs 5 crores

Small

Rs 25 lakhs to Rs 5 Crores 

Rs 10 lakhs to Rs 2 crores

Rs 5 crores to Rs 75 crores

Medium

Rs 5 crores to Rs 10 crores

Rs 2 crores to Rs 5 crores

Rs 75 crores to Rs 250 crores

The MSMEs have great potential for the economy of India. The 4.5 million MSMEs presently in India employ 120 million people, and both banks and financial institutions benefit from not only providing loans to these enterprises but from the cash generated from their turnover and sales.

The need for loans

MSMEs have a regular need for loans for the following purposes

  1. Management and financing of working capital for a full cycle from raw material procurement to sales and despatch of finished products or services
  2. Purchase and/or upgradation of machinery/ equipment
  3. Investment in new technology, including software 
  4. Financing consultancy and hiring of experts

MSME loans are of the following types  

Working capital loans can be further classified into

  1. Cash credit loans – MSMEs can access a pre-approved credit limit for financing working capital
  2. Bills discounting – Also known as invoice financing, MSMEs deposit their unpaid invoices and receive loans based on the net value of the unpaid invoices or bills. These loans have a short tenure, and the loan requires to be paid after customers have paid up against the invoices.
  3. Bank guarantee – though MSME loans do not require any collateral, many banks offer loans on the basis of guarantees by third parties who promise to pay up in case the MSME is not able to repay the loan.
  4. Letter of Credit – Popularly known as LC, banks offer loans to enterprises on the basis of a letter of credit in which banks pay the value of the invoice once the shipment is delivered.
  5. Loans under the CGTMSE (Credit guarantee fund trust for medium and small enterprises) – This is a loan offered by the ministry of the MSME for new as well as existing MSMEs upto a value of Rs 1 crores and does not require any collateral.
  6. Overdraft facility on current account – The current account of an MSME allows overdrafts upto a certain limit. 
  7. Short-term unsecured business loans – These are loans that are given for a maximum tenure of 3 years and allow enterprises financing for new expansion or diversification of their facilities. 

Term Loans are the second broad category of MSME loans, and they are further classified into 

  1. Secured term loans are loans provided for new projects, expansion of enterprises and other capital expenditure and are given against commercial or residential property collateral.
  2. Loans for the purchase of commercial vehicles or construction equipment. These loans require the vehicles and construction equipment to be given as collateral.

The loans and how to get them

MSME loans are mostly business loans but with a difference in some facilities specially provided for MSME loans.

MSMEs must apply for business loans and have both their credit rating and their udyam registration

Most of the site of lenders, including banks and financial institutions, have their own sites here. MSMEs can apply online for a business loan. One of the key features of the sites is the online loan EMI calculator, where MSMEs can determine the EMIs on the loan amount that they are eligible for those they are applying for.

Some of the benefits of the EMI calculator

An MSME loan EMI calculator is a popular app that allows applicants to try out various combinations of principal loan amounts, interest rates, and term of the loan. The program calculates and displays the EMI payable on the loan at the prevailing interest rate.

MSMEs can use the EMI calculator to try out different combinations of loan amounts. Tenures and interest to arrive at an affordable EMI and apply for the most suitable loan amount

MSMEs can plan their monthly budget once they know the exact EMI amount based on the loan that they are applying for. 

For instance, if a business wishes to take a loan of Rs 5 lakhs at an interest of 12% per annum for a tenure of 5 years and feeds these details into the EMI calculator, The program will show an EMI of Rs 11122 per month, and the total amount repayable on a loan of Rs 5 lakhs will be Rs 6.67 lakhs.

How to use the MSME loan EMI calculator

The procedure for using the EMI calculator of the MSME loan provider is very simple and does not require the applicant to log into the site.

The EMI calculator is an app within a site that can be clicked to open. Once opened, there are boxes where the applicant will need to enter the loan amount, the tenure and the interest rate.

Once these details have been entered, the “submit” button gets activated and will need to be clicked. The calculated EMI will show up on the screen.   

Interested applicants can repeat this step repeatedly until they arrive at a suitable EMI. They can now use the loan amount and tenure and go ahead and apply for the loan.

MSME & SME Loan Calculator FAQs:

1. Is any kind of security or collateral required for applying for an MSME loan?

Most MSME loans do not require any kind of security or collateral except the term loan for buying commercial vehicles and construction equipment. In this type of loan, the vehicle or the construction equipment needs to be pledged as security.

2. What is the formula used for calculating the EMI of an MSME loan?

The formula used for calculating the EMI on an MSME loan is EMI = P x r x (1+r)n/ (1 + r) n-1. Here P denotes the principal loan amount, r is the interest rate, and n is the tenure. Most EMI calculators are programmed with this formula and calculate the EMI based on the principal amount, the interest rate and the loan's tenure.

3. Is the credit rating of an enterprise essential in calculating the Interest of an MSME loan?

The credit rating of an enterprise is an important criterion for determining the interest rate of an MSME loan. The enterprise needs to have a high CIBIL score and a good repayment history to be eligible for the lowest possible interest rate.

4. Does an MSME need to be registered to be eligible for an MSME loan?

Hassle-free registration of MSMEs can be done on the Udyam portal, and very little documentation is required. While registration is not compulsory for all loan providers, some public sector banks ask for registration. The biggest advantage of MSME registration is the privilege of availing of the different subsidies announced by the government frequently.

5. Can an MSME use the buy now pay later facility to avail of business loans?

Many MSMEs are already affiliated with the fintech companies offering the buy now pay later facility. MSMEs can apply to these apps for an MSME business loan.

6. What is the longest tenure available for MSME loans?

The highest tenure presently available to MSMEs is 48 months, but enterprises can ask for longer tenures for larger term loans.

7. Are the usual features of foreclosure and balance transfer in personal loans available for MSME loans?

Yes, the features of personal loans such as balance transfer and part pre-closure are also available for MSME loans.

8. What is the maximum business loan that an MSME can get?

The maximum loan amount for an MSME loan is usually Rs 1 Crore, but an MSME can ask for a higher term loan. The lender will check the turnover and the actual expenditure for which the loan is required and then sanction the loan.

9. Can an MSME apply for a waiver of an MSME loan?

An MSME cannot ask for a waiver of an MSME loan unless it can prove it is bankrupt. MSMEs can, however, apply for a waiver of interest on loans during periods of moratorium announced by the government of India.

10. Can an MSME avail of tax benefits on loans?

A business person can arrive at taxable income after deducting expenses such as EMI on loans from the total gross income. This is a tax benefit.