MSME vs SME: Key Differences Every Business Owner Should Know

Introduction

Aspiring business owners and entrepreneurs must understand the differences between SME (Small and Medium Enterprise) and MSME (Micro, Small, and Medium Enterprises) for efficient planning of business, implementing government policies, leveraging financial opportunities, and subsidies. Many entrepreneurs use these terms interchangeably, but they vary in terms of definition, benefits, scope, and legal framework. 

In this blog, let’s understand everything that you need to know about MSMEs vs SMEs, their meanings, key differences, and other essential details that help to guide your business journey. 

To begin with, let’s understand the MSME meaning and how it differs from SME in its objectives and regulations. 

What is an MSME?

MSME stands for Micro, Small, and Medium Enterprises. It is governed under MSMED Act, 2006. MSMED’s full form is Micro, Small and Medium Enterprises Development. These MSMEs are essential for the Indian economy to generate employment, foster innovation, and contribute significantly to boost GDP, and exports. However, businesses are classified considering annual turnover and investment in plant and machinery/equipment. 

MSMEs Categorization based on investments and turnovers.

Types of Enterprises	Maximum Investment	Annual Maximum Turnover
Micro Enterprises	Upto 1 crore	Upto 5 crore
Small Enterprises	1 crore – 10 crore	5 crore – 50 crore
Medium Enterprises	10 crore- 50 crore	50 crore- 250 crore

Therefore, it’s essential to make correct classification to align with the benefits associated with MSME registration. 

Objectives of an MSME

• Increasing MSMEs contribution to India’s exports 
• Improvement in administrative processes
• Encourage business owners, particularly small and medium scale business

What is SME?

The SME meaning refers to Small and Medium Enterprises, it is the most generic and globally recognized terminology that categorizes businesses based on the organization size and its contribution to the economy, excluding micro-enterprises. 

However, small and medium sized enterprises are the businesses having fewer employees, small production capacity, and lower revenue than larger organizations. They are crucial for the economic growth of the country, contributes to GDP. Though its exact definition varies by country, most times it is based on annual turnover, investment or employee count. 

Classification of SME enterprises depends on various factors, including:

• Number of Employees– It’s a major metric used for classifying small and medium sized organizations.
• Organization Assets– The total assets of the organization also serve as a major benchmark for defining an SME.
• Annual Turnover– Though it’s a similar classification criterion for MSMEs, it can be applied in certain regions for classifying an SME.
• Geographical definition– The criteria for defining an SME varies from one country to another.

Objectives of an SME

SMEs exists in every nation with the goal of:

• Creating new employment opportunities 
• Increasing SME’s contribution to country’s GDP
• Improving the living condition of the needy people
• Encouraging people focusing on entrepreneurial endeavours

Key Differences between MSME and SME

The difference between MSME and SME often leads to confusion among all the business owners. Below is a detailed comparison table between MSME vs SME every business owner should know.

Criteria	MSME	SME
Regulatory Framework	Governed by MSMED Act 2006	It varies globally and not governed by any specific regulation
Categories	· Micro (up to 10 employees) · Small (11-50) · Medium (51-250)	· Small (up to 50 employees) · Medium (51-250)
Classification Parameters	Based on Annual Turnover and Investment	Based on organization assets, number of employees, annual turnover, and geographical definition
Scope	It includes micro-enterprises as well.	It mainly focuses on small and medium enterprises
Market Reach	It is mainly focused on local markets	It operates regionally, nationally, globally focused
Compliance	It is essential to have Udyam registration	No uniform process
Government Schemes	Provides access to tax benefits, subsides, and priority lending	Fewer benefits by government

MSMEs are defined under the Indian law, while SMEs is a broader concept which is used internationally. However, both these categories play a vital role in the economic growth of the country. 

Why Understanding Differences between MSME and SME’s Matters?

Proper business classification is important and provides access to compliance requirements, benefits, and funding opportunities. Thus, it becomes essential for every business to know about their business category to avoid legal issues.

• Government Subsidies and Schemes 

MSMEs have access to Indian business registration programs, such Udyam registration or mudra loans, while SMEs in India have a broader classification and are not eligible for such benefits. 

• Legal Requirements

MSMEs must adhere to strict legal requirements, which includes filing business registration through the Udyam registration process. While SMEs are not strictly regulated, yet should maintain proper documentation in order to avoid company registration mistakes which leads to legal compliance. 

• Financial Support 

MSMEs are eligible to get collateral free financial support, credit guarantee, and lower interest rates from banks. However, this may not be applicable to small and medium enterprises. 

Benefits of MSME registration in India 

Registration of an MSME in India provides official recognition for your business and unlocks varied benefits that supports business growth, provides competitive advantage, and financial stability. However, MSME business policy in India empowers small and medium businesses to enhance their competitiveness and boost their significant contribution to employment and GDP. 

Some of the key benefits include:

• Priority Lending

Banks are required to allot a specific portion of their overall credit to MSMEs without any rigorous collateral requirements. 

• Access to Government Tenders

Some of the government tenders are reserved for MSMEs, which further gives them competitive benefits over the others.

• Lower Rate of Interest on Loans

MSMEs are given loans at a lower rate of interest compared to unregistered businesses, thereby making it affordable to manage business operational expenses and fund growth initiatives. 

• Tax Benefits

MSME businesses have access to several tax exemptions, government incentives, and exemptions that further contribute to business development. In addition, having a thorough knowledge on the difference between GST and income tax help you in managing tax compliance effectively. 

• Digital Transformation

Incentives for participating in e-commerce platforms and the digital transformation process. 

• Protection Against Late Payment

If the loan payments of MSMEs are delayed beyond the agreed terms and conditions, businesses are required to pay the interest amount just for the late pending amount and thus provides financial security. 

Tips to Identify whether your business is an MSME or SME

In order to identify whether your business is a SME or MSME, evaluate investment levels, annual turnover, and employee size. 

Classification checklist:

• Review your investments into plants/machinery or equipments.
• Check annual turnover.
• Count the number of employees
• Classification of business sector

For international business-related operations, check out country specific SME calculation.

MSMEs can register on the Udyam portal for official registration. 

Business Ideas for MSMEs

MSMEs offer several business opportunities catering diverse interests of the people and market booming demands. Here are a few prominent business ideas for MSMEs.

• E-commerce store
• Handmade crafts 
• Mobile application development
• Food truck
• Health and Wellness coaching 
• Digital marketing agency

Top MSME Schemes in India

• Prime Minister’s Employment Generation programme (PMEGP)
• Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
• Micro and small enterprises cluster development programme (MSE-CDP) scheme 
• Entrepreneurship Skill Development Programme (ESDP)
• Scheme of Fund for Registration of Traditional Industries (SFURTI)
• Procurement and Marketing Support (PMS)
• Assistance to Training Institutions Scheme (ATI)
• Coir Vikas Yojana 
• International Cooperation Scheme
• National SC-ST Hub Scheme 
• A Scheme for Promotion of Innovation, Rural Industries, and Entrepreneurship (ASPIRE)
• Khadi Gramodyog Vikas Yojana
• Promotion of MSME in NER and Sikkim

New Schemes

• Tool Rooms and Technical Institutions 
• MSME Champions Scheme
• Self Reliant India (SRI) Fund
• PM Vishwakarma- Enabling Artisans and Craftspeople to scale-up their Enterprises
• Raising and Accelerating MSME Performance

Step-Wise Registration for MSMEs

Udyam Registration Portal is an official platform by the Indian government for MSMEs registration, and it is a straightforward process. 

1. Visit the official website of Udyam registration, which is managed by the Ministry of Micro, Small, and Medium Enterprises. 
2. Provide basis details, including 

• Business entity and owner’s name 
• Business address and contact details
• Type of business
• Aadhar and PAN details 
• Bank account details 

1. After reviewing all the details, apply for the certificate.
2. The system instantly generates an Udyam registration e- certification, which is valid for a lifetime.

MSME vs SME – Which one for your business?

If you are operating your business from India, then it’s always advisable to opt for MSME registration. It is legally recognized and is entitled to several benefits, such as credit support, low rate of interest, tax benefits, digital transformation, and others. 

On the other side, if your business operates globally or collaborates with foreign investors, then you can identify as an SME. 

Final Thoughts

MSMEs and SMEs are the lifeline of the country’s economy as it drives innovation, business growth, and employment. Though they share similarities, yet understanding their significant differences is crucial for business owners to make informed decisions. 

MSME registration is not only beneficial, but it is also a strategic business opportunity that opens doors to leverage various benefits. Therefore, understanding the SME meaning and MSME meaning, business owners can identify where they fit in the market and leverage the available benefits while helping you make smarter financial decisions. 

So, what are you waiting for? Evaluate your business investment, scope, and annual turnover and take subsequent steps to become empowered and identified as MSME or an SME.