Starting a new business or expanding the existing one is not a tranquil job. It is because to earn money; you need to invest money too. The invested money could be in the form of any resource, like machinery, labour, or the capital itself.

Nevertheless, money is the prime requirement to buy other resources. You can find ample ways to finance your small business — one such way to get financial assistance in the form of SME loans.

A business loan is a debt that the businesses have to repay along with interest after the agreed period. It is essentially the borrowed capital along with some terms and conditions applied. Loan lenders want to know whether the money they are putting in the business venture is feasible enough to get the return so that the loan amount can be repaid. So, the businessmen should have a clear cut idea as to how the money will be put in use. Otherwise, there is a chance that the business loan application might get rejected.

Your Ultimate Guide To SME Loans In India

Also, the screening process is very strict, and a large part of the SME loan applications are rejected. The applications are evaluated based on the company’s background, previous year’s performances, another loan availed, and several other factors for that matter.

An SME loan is not given for free; there is a business loan interest charged along with it. This interest can be fixed or reducing in nature. The business loan can be a secured or unsecured, depending on the fact whether collateral is required to be put against the business loan taken or not.

SME loan

There are different types of business loans that a business owner can borrow:

  • Accounts Receivable Financing: In this, businesses can get immediate cash based on the accounts receivable that a company has. It is used to convert sales on credit terms.
  • Working Capital Loan: Working capital loans are usually short-term loans which are used to finance the day-to-day operational business activities, like inventory purchases, advertising, etc. This type of business loan can also be taken in contingency situations or while handling debt.
  • Machinery Loans: Up-to-date machinery or equipment can benefit the business in terms of increased production output and decreased cost per unit. New equipment or machinery could be bought using a machinery loan. The business owner can also take the machinery loan to upgrade the existing machinery or equipment as well.
  • Short-term Loans: As the name suggests, short term business loans are availed for a short period, usually ranging from 12 months to 24 months. The SME loans so availed under this type are usually a small amount, ranging from Rs. 1 lakh to 5 lakh.

Top Reasons Why Loan Lenders Hesitate In Granting SME Loans

 Major Business Loan Requirements

There are some business loan requirements that the business owner is expected to meet. Although the business loan eligibility differs from one lender to another, the following are some common points.

  • Minimum Turnover of the business in the last 12 months must be Rs. 10 lakhs.
  • The ITR of the last year should be more than INR 1.5
  • Business vintage (operations) for at least two years.

While applying for a business loan, the borrower must see that he meets the eligibility criteria laid by the lender. Another important thing that must be considered is the CIBIL score. The minimum CIBIL score for a loan is said to be 715.

Things to Consider While Availing a Business Loan

While availing a business loan, the following are the things to consider:

  • The terms and conditions laid by the lender—read the agreement carefully before signing the dotted line.
  • The interest rate charged on the business loan by the lender—you can bargain with the lender on this.
  • Other costs, such as processing fee—ensure that there are no hidden charges.
  • The tenure for the repayment of the business loan—go for the tenure that suits your pocket.

An SME loan is indeed the best option for a small business owner facing a cash crunch. And with many NBFCs in the market, availing a business loan has turned extremely convenient for the borrower.

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