MSME Registration: Process, Advantages and Disadvantages

What is an MSME?

MSME is an abbreviation for Micro, Small, and Medium Enterprises. MSME enterprises are the backbone of the economy in a growing country like India. When these industries expand, the country’s economy as a whole expands and thrives. Small-scale industries, or SSIs, are another name for these businesses.

Even if the company is in the manufacturing or service industries, the MSME legislation allows for registration in both of these sectors. Although the government has not made this registration necessary, it is advantageous to have one’s business registered under it since it gives several benefits in terms of taxation, business setup, credit facilities, and financing.

ObjectiveMSME Registration

  • MSME Registration stands for Micro, Small, and Medium Enterprises that are also known as businesses that boost our economy at the ground level and provides optimum contribution to its growth.
  • In a developing country, MSME’s are considered to be a backbone of the Indian economy and look after the socio-economic development of the Country.
  • The Indian Government has always motivated small and medium industries and provided benefits to the same.
  • In this Article, the reader will understand about the benefits that MSME will provide to the people.

Contribution of the Micro, Small and Medium Enterprises (MSME) in Indian Development

  • The MSME sector alone contributes up to 45% of India’s total Industrial Employment.
  • On the other hand, India’s Total Exports and all industrial units contribute up to 50% and 95% respectively.
  • According to the survey more than six thousand types of products and categories are manufactured in MSME.
  • Simultaneously, when such MSME will grow and flourish, the economy of the Country will definitely grow as a whole.

What constitutes Micro, Small and Medium Enterprise

  • In the present scenario, the classification was based on certain investment criteria machinery and equipment.
  • To get benefit, it has to limit their investment criteria to certain lower limit such as in manufacturing sector, Investment in micro enterprise shall be made not more than Rs 25 Lakh.
  • In small enterprises, the investment shall be made  not more than Rs 5 Crore and for Medium size enterprises investment shall be not more than Rs 10 Crore.
  • The above prescribed limits have made tough for the MSME to grow their business further. Provided there has been a long pending demand for the revision of classification list for further growing their existing business.
  • Recently, under Atmanirbhar Bharat Abhiyan, the BJP led Government have inserted composite criteria of making investment and annual turnover in MSME classification notification.
  • The new change also includes removal of differentiation between service and manufacturing sectors under MSME definition clause.

Requirements for Registration

  • In order to register the MSME, the person has to fill a form through online or offline mode.
  • In case if person wants to do a registration for more than one enterprise than he can register as individual person.
  • The form shall be available on the on the official website for MSME registration.
  • Important documents required for registration are as follows:
  • Original Aadhaar card of the person in whose name registration is to be done such as Director, Partner or Proprietor
  • Social category of Authorized Person
  • Full name of enterprise and mentioning the type of enterprise
  • PAN of the registering enterprise
  • Place of business
  • Bank details of the enterprise
  • Details of the employees
  • Details relating to turnover and machinery
  • National Industry Classification Code of the enterprise

The Benefits of MSME are as follows:

Collateral free loans

  • In the new scheme, Government has developed various initiatives for MSME that has created better ways to avail credit without any collateral securities.
  • The primary MSME benefit of registration is the initiative to provide loan without security by the Government of India, Small Industries Development Bank of India (SIDBI) under the scheme of The Credit Guarantee Trust Fund.
  • This is a whistle blower for the new and small business owner to register a MSME.

Subsidies on Intellectual Property like Patent registration and Industrial design

  • The large amount of subsidy up to 50% is given to the business enterprises those are registered under Micro, Small and Medium Enterprise Act for patent registration.
  • This benefit can be availed by writing a application to the respective Ministry.
  • Additionally, the Government also provide subsidy on the Industrial design and promotion for better growth.

Exemption from Interest rate and provides facility of overdraft

Under this businesses or enterprises are also eligible to avail 1% of benefit on overdraft being a part of the scheme i.e. Credit Guarantee Trust Fund Scheme. This might also depend on and vary from bank to bank.

Concession on Electricity Consumption

  • The concession on electricity bills is also provided by the Government for the registered enterprise as an MSME.
  • To avail this benefit, the person should submit a copy of electricity bill, application and registered MSME certificate.

Protection against the debt

  • Keeping in mind about the risk lying in the business profit, the Government has worked as a helping hand by providing a safety against the payment.
  • The Ministry of Micro, Small and Medium Enterprise has given business owners right to collect interest on payments not paid on time by the buyer.
  • If in any case buyer fails to make payment within 15 days of the purchasing the goods and services or at last 45 days, the business enterprise is eligible to charge 3 time more compound interest as prescribed by Reserve Bank of India.

Reimbursement of ISO Certification charges

A registered enterprise can claim the reimbursement of expenses that were incurred on International Standard Organization (ISO) certification.

Preference of the Tender to the MSME

  • In recent times, MSME has been given a preference in tenders that are exclusively for such enterprises only.
  • The Finance Minister in recent Covid-19 relief package had announced that on the instances of unfair competition from foreign companies in procurement of Government tender in terms of size and strength.

Disadvantages of MSME

Although you do not have any disadvantages for MSME registration, but sometimes you face the challenges related to the MSME Loans because of low bargaining power, limited access to skilled personnel, difficulties in finding funding as compare to large companies. So disadvantages for MSME loans are explained which are as follows:

Accumulation of Interest

  • One of the disadvantages of MSME registration is in case of loans. In case you take up the MSME loan, interest rates are low as compared to other types of loans but the interest accumulates speedily whereas this type of liability does not happen in the case of bootstrapping or angel investment.

Tedious Loan Procedure

  • The procedure for sanctioning loan is tedious, as various documents need to be filed while applying for MSME loan application. Although the percentage of loan approval in high in case of MSME loans. All detailed documents like P&L statement, ITR of company, bank accounts information, bills of payment and receipts along with several other documents to prove the lender credibility.

No Collateral Requirement – Unstable for Banks

  • No collateral requirement is a benefit for the lenders but sometimes it become difficult for the banks. As the MSME loans are provided without any collateral hence it makes loans unsecured and unstable for the banks because of not recovering money in some of the cases.

Processing Fees Charges

  • Processing fees in case of MSME loans requires a fees which to be paid by the borrower, and it comes as an extra expense for entrepreneurs.


  • With the outstanding support of the Government, there has been a significant growth and development of Micro, Small and Medium Enterprises industry. This support has given rise to many aspirants amongst the youth to explore their entrepreneurial talent with individual venture.
  • This article has tried to cover the advantages, disadvantages and registration process for MSME registration and loans that an entrepreneur must know.

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