A Complete Guide on Setting Up a New MSME Unit

Post-implementation of GST, SMEs, and MSMEs are witnessing a steady growth – the latter contributes to 50% of total exports, 45% of total industrial employment, and 95% of all industrial units of India. As per the official site of the sector, about 600 products are manufactured in these sectors, and hence the country’s economy is mainly dependent on the progress of the same. Furthermore, the MSME sectors hold the potential to create about 1 Crore job opportunities in the upcoming 4 to 5 years.

Following such prospects of this industry, multiple entrepreneurs are now showing interest in investing and setting up MSMEs. In an attempt to boost this endeavor, numerous funding options in the form of MSME loan are being offered. It helps MSMEs meet their financial requirements to:

  • Pay for several overheads.
  • Invest in the firm’s infrastructure.
  • Install new machinery.
  • Maintain a positive cash flow.

Considering such advantages of the financing options, setting up MSMEs (MSME full form is Micro, Small and Medium Enterprises) has become comparatively convenient along the years. All that prospective entrepreneurs need to know is how to set up a new MSME unit.

Step 1: Selection of project and product

Entrepreneurs first need to settle upon a product or a service that generates the maximum surplus. Taking into account that this forms the basis of the business, individuals must:

  1. Consider if it’s a viable proposition in their serviceable locality
  2. Conduct market research and see if the product will fetch maximum revenue
  3. Decide upon the multiple aspects of the products, viz. – the product line, packaging, branding, warranting, after-sales services, etc.
  4. Check out the ease of availability of the raw materials, accessibility to the market, processing technology, etc.

Such an in-depth conceptualization of the product or service in question helps entrepreneurs arrive upon an idea about the approximate expenditure involved and the potential of the service that they are about to launch.

Step 2: Hire or purchase machinery

Following the finalization of a product, choice of process technology is the next step. Choosing the right machinery supplier is of critical importance. Indigenously developed or imported process know-how needs to be studied thoroughly, which brings in benefits like inexpensiveness and accuracy in approaching the business. This process takes into consideration pointers that include

  • An estimate of involved machinery,
  • Human resources,
  • Product or process patent,
  • Special environmental or pollution regulations

Potential businesspersons need to hire purchase application on the prescribed form under NSIC procedures and provide the required details. Considering that an applicant clears all necessary dues, the organization releases R/R or C/R to him/her that is beneficial while taking delivery of equipment.

Step 3: Arranging for finances

Post-conceptualisation of the project, individuals now need to arrange for finances to fund the setting up of a business. Following this, multiple MSME loan is being offered to encourage these seed-stage organizations to start their venture. There are numbers of lenders in the market offering the fund at different MSME loan interest rates. It completely on your choice which is the best to choose out. They are an efficient financing solution for MSMEs and includes several types, like –

  • Short term or working capital requirements.
  • Bridge loans.
  • Risk Capital.
  • Long and medium-term loans.
  • Seed Capital.

However, considering that the government financing endeavors offer a loan amount of up to Rs. 10 Lakh, borrowers may often face a monetary deficit while setting up their MSME business. It is considering the escalated price of raw materials, leasing workspace, hiring employees, transportation cost, etc.

Step 4: Development of the unit

Considering that entrepreneurs now have convenient access to funds via MSME loan, they can now look into the location for setting up the business units. It includes –

  • Construction of a building
  • Getting utility connections
  • Looking into the 3M’s – materials, men, and machinery

Step 5: Obtaining clearances

Depending upon the nature of products and services settled upon, prospective MSME business owners need to obtain several clearances:

  • Taxation or regulatory
  • Product-specific
  • Pollution and environment-related

Step 6: Quality certification

Acquiring quality certification is imperative, taking into consideration the competitive market scenario. Availing ISO-9000 involves considerable expenditure that can be met using the fund obtained via advances from reputed lenders

Such an organized step-by-step procedure makes it convenient to register for and establish an MSME with the prospect of maximum return.