Small And Medium Sized Enterprises Loans

What is an SME loan?

SME Loans are given to entrepreneurs, either aspiring to set up a new business or modify and expand a current establishment. SME loans can be availed even for technological upgradation of a particular process. Some businesspersons would like to avail an SME loan to upgrade their manufacturing unit to adapt greener energy alternatives. These are some of the purposes for availing an SME Loan.

Where to get an SME loan?

1. Government Banks or PSU Banks (SBI, Bank of Baroda, Punjab National Bank, etc)

2. Private Banks (ICICI Bank, HDFC Bank, AXIS Bank, etc)

3. NBFCs (Mahindra Finance, Bajaj Capital, Fullerton, Tata Capital etc)

The government disburses financial loans to various SMEs through dedicated schemes built for this purpose. Entrepreneurs can approach various PSU Banks that are authorized to give loans under these schemes. Banks also have their own MSME loan products.

How is an SME loan processed?

As mentioned earlier, proprietor of an established business or an aspiring entrepreneur can approach a bank or an NBFC for an SME Loan. While applying for an SME loan, one should have done the basic groundwork with regards to the type of loan, the amount required, the eligibility criteria etc. The process usually consists of the below steps:

1. Prepare a comprehensive summary of the business and purpose of the loan

2. Attach supporting documents to establish the worth of your business idea or establishment

3. Briefly explain the benefits you are expecting to derive out of the loan

4. Promptly fill the necessary forms required by the financial institution and duly submit it to the authorized person

The SME Loan process is quite simple and straightforward in most banks. With sufficient documents to support the purpose of your loan, it would be processed quicker and the funds disbursed to your account. Banks look into a few eligibility criteria while processing your SME loan

• Proprietorship of the firm – Sole or Partnership
• Nature of the holdings – Private limited company or Public limited company
• Nature of business – Manufacturing or service units
• Profitability of existing businesses – steady profit for 2 or more years
• Monetization factors of new business – how soon can a new business become profitable
• Registration and recognition of the establishment under Government norms

The above factors help the banks/NBFCs in deciding the creditworthiness of the business and hence the approval of loan. The applicant should take special care in highlighting these factors in their loan application.

Types of SME Loans

SME Loans are of two types –

• Secured Loans – where the banks need you to submit substantial collateral or guarantee. The rate of interest on these loans is lower.
• Unsecured or Collateral free loans – where the loan is processed based on a healthy existing relationship with the bank or the profitability of the business. The rate of interest on these loans is relatively higher.

Once the bank has approved the loan, it is disbursed in various forms viz;

• Initial capital in the form of term loan or demand loan
• Working Capital in the form of cash credit, overdraft etc;
• Overdrafts based on Bills of Purchase
• Export credit facilities
• Bank Guarantees
• Foreign or Inland letter of credit

Banks offering SME Loans

State Bank of India (SBI) :

Being the go-to bank for Indians at all times, SBI has a great number of products to boost the SME sector. It allocates a major portion of its lending to SME sector through various schemes. SBI is also the nodal representative for various government schemes announced to boost MSME finance.