Post financial crises, the global economy is still facing hardship to have a healthy growth rate. Similarly, India’s GDP is poised with breaks to gain better economic conditions. Recently, Moody’s Investors Service forecasted a decrease in India’s GDP to 6.2 percent. This sluggish economy is due to various factors, including rural household distress, weak hiring, and tight finance. Furthermore, the report also stated moderation in the business module and slow credit flow to businesses are contributing towards the more inadequate investment. However, the SME (Small Medium Enterprise) industry is going in a constant phase. One of the reasons is because the Indian government has relaxed certain norms in SME loan, further boosting the growth.
Currently, there are more than 42.50 million registered and unregistered SMEs, that employs around 106 million workforces. The availability of an online SME loan, unsecured business loans, and other loan schemes are pushing towards the growth of SME. In India, both banks and Non-Banking Financial Companies (NBFCs) offer loans to SMEs. Some are either collateral-free or borrow by pledge assets. There are different types of SME loans available in India. However, it is essential to know what exactly it is.
What Is An SME Loan?
In simple words, the SME loan is financial assistance by finance companies to cater to the financial needs of SME companies. SMEs are responsible for providing excellent employment opportunities and aiding industrialisation in rural areas. In India, there are different types of SME loans, which an entrepreneur can approach.
However, to get the loan, there are specific eligibility criteria to know before applying. Some of these loans include machinery loan, working capital loan, term loan, etc. These loans help in buying machinery and increasing the working capital. Different financial institutes offer different loan amount and tenure. The loan amount ranges from Rs. 1 lakh to Rs. 5 lakhs or more.
Before we move into how to apply for a business loan, let us check different types of SME loans:
Term Loan
This is the popular type of SME loan provided by NBFCs. Lending institutions offer both short-term and long-term investments. The loan amount, tenure, and interest rate differ from lender to lender. Some charges the fixed interest rate while others offer in floating interest rates. If your business falls under the eligibility criteria, then the NBFCs will disburse the loan within 78 hours or 3 days.
Working Capital Loan
In simple words, a working capital loan is a fund availed by firms for covering daily operational expenses. The main aim of this loan is to help businesses to be more focused on the overall growth and keep generating capitals. Small businesses may come across financial needs on an urgent basis to continue generating growth. This is when working capital loans come to the role of tackling financial needs. Majority of working capital loan fall under unsecured.
Capital Loan
Also called Loan Capital, it is a form of lending money comprising loans, bonds, and preferred stock which should be paid back to the investor. Under capital loan, the borrower will require to make some periodic interest payment to investors. However, the investor won’t get the share from the organization’s profit.
Applying for a Small Business Loan
Gone are the days when SME entrepreneurs had to wait for a longer duration to get the business loan. A plethora of documentation process and eligibility criteria were time-consuming. Thankfully, with an online loan application, the borrower does not need to undergo the stressful process and can get instant SME loan. However, before you apply for the SME loan, comparing the loan payback tenure, interest rate, and processing fees are quintessential.
Below are the steps on how you can apply for an SME loan
- Check your Credit Score: This is the most crucial part of seeking a loan. The lender would consider checking your credit score, which should be high as per the rules. Finance lending companies prefer lending loans to business owners who have good credit history like 700 or above. If you have no idea on how to check the credit score, visit online finance lending sites. It is essential to maintain the credit score (CIBIL) high by repaying the previous loan on time. This will help in getting an SME loan instantly.
- Check the Eligibility Criteria: Different finance companies have different eligibility criteria, which you need to be aware of and compare. Some prominent leaders have eligibility criteria, including:
- Previous sales to be at least Rs. 5 lakhs or more.
- Presenting previous year’s ITR which should be at least Rs. 1.5 lakhs
- Have business premises with enough assets.
- Proof of identity – PAN card, business and house address proof, and bank statement for nine months.
- Commercial and house property documents
- Maintain the Proper Account: As a business entity, it becomes essential that you keep the business account record properly. It is advisable to keep an audited record of your business finance to present in front of the lender.
Benefits Of An SME Loan
- Multiple Repayment Options: Since lenders understand the complexity involved in a business, they offer personalised repayment plans while sanctioning the loan. Moreover, lenders offer different loan repayment tenure– 12 months, 18 months, and 24 months. Once you pay 6 EMIs, you won’t have to face pre-payment charges.
- Hassle-Free Application Process: Minimal documentation, simple process, and loan disbursement in 3 days make the process hassle-free. The complete SME loan application process is available online so that you can apply within the comfort of your chamber.
- Quick Fund Disbursal: To expand your existing business, you will get the assured fund instantly. Some prominent SME loan lending companies disburse the fund within 3 days.
The role of SMEs in the Indian economy is essential. Along with generating employment opportunities, they also push the GDP ahead. Finance companies are doing their best to help such enterprises to grow with good financial backup. Opt for the best SME loan in India for better business growth.