How to Qualify for an SME IPO: A Step-by-Step Guide to Eligibility

While the contribution of small and medium enterprises (SMEs) in India’s growth is well known, there is a silent story happening in the SME space that is hard to miss. Over the years, many SMEs across industry verticals have applied for IPOs. Between April 1 and October 31, 2024, 169 out of 217 IPOs originated from SMEs. In 2025, 267 SME IPOs hit D-street, raising over ₹12,000 crores.

However, not every SME can apply for an IPO. SMEs must meet specific eligibility criteria before they can raise capital from the public through an IPO. What are the SME IPO eligibility criteria and their various aspects? Let us find out.

What is an SME IPO?

An SME IPO is an IPO issued by a small or medium-sized enterprise. As per the revised classification effective from July 1, 2020, companies with an annual turnover between ₹50 crores and ₹250 crores are classified as SMEs.

SMEs, like their mainboard counterparts, go for IPOs to raise funds from the public for various purposes. These could be for business expansion, buying machinery, repaying debt, etc. Post IPO, the shares are listed on BSE SME and NSE Emerge, two designated platforms for SMEs in India. For investors, an SME IPO is a chance to invest early in a growing company.

Eligibility Criteria for Companies

An SME must meet the following criteria set by SEBI and exchanges to be eligible for an IPO. For a company to get listed on the BSE SME:

• Its post-issue paid-up capital should not be more than ₹25 crores
• Its net worth should be at least ₹1 crore for the two preceding full financial years
• The company’s net tangible assets should be at least ₹3 crores in the last preceding financial year
• The company should have an operating profit of ₹1 crore from operations for two out of the three latest financial years before the application
• Leverage ratio of not more than 3:1 (exceptions can be for finance companies)
• The company must have a minimum net worth of ₹5 crores and should have earned at least ₹5 crores as profit before tax in any two years out of the last three financial years. Otherwise, it should have a net worth of at least ₹25 crores in any three out of five financial years

Also, the company, its promoters, and its subsidiaries should not have defaulted on any payments of interest or principal to debenture, bond, or fixed deposit holders.

For a company to get listed on NSE Emerge, it should fulfill the following criteria:

• The firm’s post-issue paid-up capital should not be more than ₹25 crores
• The company must have an operating profit of ₹1 crore from its operations for two out of the three latest financial years before the IPO application
• The company must have a positive free cash flow to equity for a minimum of two out of three previous financial years before the application
• The firm should not have received any winding-up notification from the National Company Law Tribunal (NCLT)

Eligibility Criteria for Promoters

Eligibility criteria for SME IPOs also apply to their promoters. In other words, the company’s promoters must meet certain criteria for it to raise capital via an IPO. These include:

• Promoters should not be debarred from accessing capital markets
• Promoters should not be wilful defaulters or fraudulent borrowers
• Promoters should not be fugitive economic offenders Eligibility Criteria for Investors

Just as with mainboard IPOs, qualified institutional buyers (QIBs), non-institutional buyers (NIIs), and individual investors can apply for an SME IPO. The maximum number of lots and investment amount varies across investors. Here are SME IPO rules for investors:

• Individual investors who apply for a minimum of 2 lots require a minimum application size of ₹2 lakhs
• Employees can bid for a minimum of 2 lots, over ₹2 lakhs and up to ₹5 lakhs
• Qualified Institutional Buyers and Non-Institutional Buyers can apply for more than 2 lots

Benefits of SME IPO

Here are the benefits that SME IPO offers:

• Capital Access

An SME IPO helps the company raise the funds needed to achieve various objectives. They can use the money raised to expand capacity, open new units, or invest in technology. Management can think beyond short-term survival and focus on steady growth.

• Reduced Dependence on Debt

Most SMEs rely heavily on bank funding. That dependence comes with risk. A slowdown in cash flows can quickly turn into a liquidity problem.

By raising equity, companies improve their balance sheet. Debt-to-equity ratios fall. Credit profiles can be strengthened. This, in turn, can make future borrowing easier and cheaper. Even lenders look at listed SMEs differently. The presence of public shareholders adds comfort.

• Better Visibility and Credibility

Listing brings visibility that private companies rarely enjoy. A listed SME is subject to disclosures, audits, and regulatory oversight. While this increases compliance, it also builds trust.

Customers, suppliers, and vendors take listed entities more seriously. Large clients often prefer dealing with companies that follow transparent processes. For SMEs bidding for government or institutional contracts, this credibility can open up several opportunities.

• Improved Corporate Discipline

Markets demand discipline. Timely results. Clear disclosures. Better governance. All of these can improve decision-making. Companies become less dependent on individuals and more process-driven. This often helps during leadership transitions or succession planning.

Conclusion

As India’s economy grows, SMEs will continue to play a vital role. Their IPOs can help them raise funds for growth and become competitive. At the same time, it gives you, the investor, the chance to be a part of their growth story.

That said, you must do due diligence before investing. Go through the company’s red herring prospectus to know about the company, its financials, and risks before investing.

Sources:

IndiaIPO
ETNow
IBEF
BSE SME
NSE
SEBI
Economic Times
NSE