In India, small and medium-sized enterprises (SMEs) play a
significant role in the growth and employment opportunities of the
Indian economy. However, these enterprises may face a financial crunch
to expand their businesses.
In such scenarios, SME loans from
various financial institutions help in expanding and fulfilling the
capital requirements. Read on to learn about SME loans, types,
benefits and more.
What are SME Loans?
An SME Loan is a type of business loan that caters to the financial requirements of the Small and Medium Enterprise (SME) category. These enterprises are responsible for creating several jobs at relatively modest capital costs while assisting in the industrialisation of backward and rural regions. In addition, SMEs play a significant role in the nation's growth by boosting export profits and contributing significantly to domestic output.
Types of SME Loans in India
There are several types of SME loans you can choose from
according to your requirements. They are as follows:
1. Term Loan
A term loan is one of
India's most sought-after forms of SME financing. It can be both
secured and unsecured. Some lenders would lend up to ?30 Lakh.
However, the company's credit history determines the bank
loan.
An unsecured term loan has a payback period of 12 to 60
months. If you choose a secured loan, the term might range from
180 months to 240 months. A term loan is often obtained for a
specified reason, such as capital spending.
2. Loan For Working Capital
The
working capital loan in India tries to overcome financial shortages
to ensure the firm's smooth running. You may receive cash to cover
your business's day-to-day operational demands with this form of a
loan.
It allows you to deal with a financial shortage throughout
the offseason and accommodates high season demand. Borrowers such as
manufacturers, content providers, distributors, and retailers benefit
the most from it.
3. SME Loan Secured by Real Estate
It is another micro-financing solution to fulfil your company's
needs. As the name implies, it is a form of secured loan in which you
must guarantee your property as security. The loan amount is usually
higher than ?5 Crore. You can obtain a loan against a home or
commercial property.
In addition, you can borrow 70% of the market
value of your house and have to ensure that the property is debt-free
and clear. The payback period of this loan ranges between 180 months
to 240 months and you have to ensure that the property is clear of
legal proceedings.
4. Financing for Equipment
It is an
SME Loan in India that meets manufacturing businesses' needs, making
it one of the most popular forms of SME Loans India-wide. Through
this loan, you can purchase expensive equipment for the seamless
running of your firm. Moreover, it is secured, implying that you
must guarantee the machinery's security.
You can obtain an
amount of the loan depending on your need. Moreover, you will need
to persuade your creditor that you can make payments within the
specified EMIs. Generally, the interest rate is much lower than term loans.
5. MUDRA Yojana by Pradhan Mantri
A
new SME Loan in India allows applicants to borrow up to ?10 Lakh.
However, the type of your small business determines the size of your
loan, such as:
- Shishu - Shishu can obtain a loan of up to ?50,000 at an interest rate ranging from 1% to 12% per annum.
- Kishore - A Kishore loan could get you amounting to ?5 Lakh at an annual interest rate of 8.60%.
- Tarun - With a Tarun loan, the loan amount could go up to ?1 Crore every year at an annual interest rate of 11.15%.
Each category represents a different stage of growth. Pradhan Mantri MUDRA Yojana is an Indian microfinance alternative that addresses your individual operating capital requirements. It also allows you to receive a loan for tractors, two-wheelers, and other commercial vehicles.
6. Cash Credit
You can obtain cash
credit by pledging current assets as security. These assets can
include raw materials, accounts receivable, stock in trade and
outstanding bills. Borrowers can also use the cash credit facility
as revolving credit to increase their working capital. In addition,
you can obtain an overdraft capacity from a financial institution
with whom they already have an account.
Furthermore, small and
medium-sized business owners can use services such as invoice
factoring to support their operations. However, one should note that
the amount of credit available may not be considerable or sufficient
with this kind of SME lending.
7. MSME Loan
It is a
government-sponsored SME program that allows applicants to receive
loan approval in as little as 59 minutes. It enables you to obtain
up to ?1 Crore in less than an hour. In addition, it has a cheaper
interest rate than other lending choices, with rates starting as low
as 8.50%. Both banks and non-banking finance companies in India
offer it.
When you register for a business loan for MSME, the
borrower will look at your income, repayment ability, and previous
financial commitments to see whether you qualify. Hence, the minimal
documentation procedure makes it one of the fastest ways to get
finance to fulfil your company’s demands.
ALSO READ :- Useful MSME Business Loan Tips for Young Entrepreneurs
Benefits of Obtaining an SME Loan
SME borrowers usually SME loans to expand and grow their
businesses and meet their working capital requirements. Here are a
few benefits of obtaining an SME loan:
1. Competitive
Interest Rates
The interest rate of SME loans is
more affordable than other
types of business loans, making it one of the most popular
business loans in India. However, the interest rate will depend on
your credit profile, business performance and other criteria.
2. Huge Loan Amount
You can avail as high
as ?30 Lakh of SME loan to expand and grow your business without any
end-use restrictions as it is a type of unsecured loan.
3. Flexible Repayment
SME loans have a
repayment tenure of 60 months, making them one of the most popular
types of business loans. In addition, you can choose the monthly
instalment payment according to your repayment capacity.
4. No Collateral Needed
Since SME loans
are unsecured types of loans, you do not have to keep any
collateral, security or guarantor with the financial
institutions.
5. Nominal Additional Charges
The
part-payment, foreclosure, processing fee and late payment penalties
of SME loans are nominal, reducing the financial burden in case of a
financial emergency.
How to Apply for an SME Loan in India
Here are a few simple and hassle-free steps you can follow to apply for an SME loan in India:
- Step 1: Click the ‘Apply Now’ button to fill out the application form.
- Step 2: Enter your details and upload all the necessary documents.
- Step 3: Click the ‘Submit’ button to complete your application procedure.
Common Mistakes to Avoid When Applying for an SME Loan
Before applying for an SME loan in India, you must be aware of
the common mistakes so that you can avail the loan seamlessly:
1. Lack of Research
You must research
various financial lenders before applying for an SME loan, as it is
essential to know their eligibility criteria, interest rates and
terms associated. Not doing so can lead to the selection of a loan
type that does not align with your business requirements.
2. Ignoring Credit Score
Neglecting
your credit score will restrict you from getting an SME loan from
financial institutions, as it defines your creditworthiness. Having
a good or high CIBIL
score enables you to get SME loans at
lower interest rates and favourable terms and conditions.
3. Not Having a Business Plan
If
you do not have a solid business plan, the lending organisation
will have confidence that you can repay the amount. A
comprehensive business plan containing your company’s objectives,
repayment strategies and financial projections enables lenders to
trust you.
Small Business Loan from Poonawalla Fincorp
Poonawalla Fincorp offers collateral-free business loan at attractive interest rates, starting from 15% per year, with a repayment tenure ranging from 6 to 36 months. It enables you to obtain business goals by providing a hassle-free application process. In addition, the minimal eligibility criteria and online application procedure assist you in applying for credit conveniently from Poonawalla Fincorp.
To Conclude
Knowing the different types of SME loans available in India will enable you to choose the right loan according to your business requirements. In addition, SME loans provide a boost to your business so that you can grow and expand your business for the long term. However, ensure that you avail of SME loans from trusted financial lenders like Poonawalla Fincorp to get affordable interest rates and long repayment tenure.
Frequently Asked Questions about SME Loans
1. How can I repay my SME loan?
You
can repay your SME loan by considering debt consolidation, making
timely monthly payments or choosing a short loan tenure.
2. Can I get an SME loan without providing any
collateral?
Yes, you can avail SME loan without
providing any collateral or security to the financial organisation.
3. Can I prepay my SME loan?
Yes,
you pre-pay your SME loan amount. However, the pre-payment and
foreclosure charges will vary from one lender to another.
