Small Medium Enterprise

SME units cover all the eligible units that are engaged in the manufacturing or service activities. They are defined by the MSMED Act, 2006 based on their investment in the manufacturing activities or service activities. Their level of investment in plant and machinery or equipment is the basis of their classification into Small or Medium Enterprises. These limits as per the Act are specified hereunder.

The Finance Ministry has recently revised the above limits that essentially change the definition of the MSME sector. The revised limits are specified hereunder.

Eligible Units as per SME sector

Any organization that fulfils the eligibility criteria of investment as per MSMED Act, 2006 can be called as an SME unit. These units may include any of the following entities.

• Self-Employed Individuals/ Professionals
• One person Company (OPC)
• Partnership Firms
• Limited Liability partnerships (LLPs)
• Private Limited Companies
• Public Limited Companies

Documents needed for SME Loans

The documentation process for SME loans is usually basic in nature and similar in case of mostly all lenders. This ensures that the SMEs get prompt loans for their urgent financial needs without the need to produce lengthy documentation.

The list of documents to be submitted for an SME loan usually comprises of the following,

• Identity proof of the applicant
• Address proof of the applicant
• Bank statements for 6 months at least (proving the financial stability of the applicant)
• Form 16/ ITR for past year at least (providing Income proof)
• Partnership Deed/ Trust Deed or any other similar document as the case may be
• Memorandum and articles of association in case of a company
• Financial statements for the past year at least (Balance Sheet and Profit and Loss Statement)

The above list of documents as mentioned is very basic in nature and the actual list of documents may vary from lender to lender depending upon their set guidelines. Applicants or borrowers can get all the relevant details of the documents to be submitted by contacting the lender.

Types of SME Loans

The financial institutions (banking or non-banking) and the government loan schemes available to the SME units or organizations are essentially of two types,

• Secured loans (loans disbursed or sanctioned against a security or collateral)
• Unsecured loans (loans that are disbursed or sanctioned without any security or collateral based on the credit profile of the applicant, business prospects or projections, etc.)

Most loans available to the SME units are usually unsecured in nature. However, some banks or NBFCs may ask for security or collateral against the loans sanctioned.

The loans sanctioned for SME entities or organizations can be in any of the following nature or purpose.

• Term Loans
• Line of Credit/ Overdraft Facility
• Bill Discounting or Invoice Discounting
• Point of Sale Finance
• Bank Guarantee
• Pradhan Mantri Mudra Yojana
• Asset Backed Loans
• Business Loans specifically targeting Women Entrepreneurs

Application procedure for SME loans

The application process for SME loans is fairly simple. It is made to be easily accessible and understandable by the masses of the country. The lending institutions usually offer an online procedure of application as well. This reduces the time of application as well as the need to physically visit the lender’s office.

Applicants can either apply online through the lender’s website or can download the loan application form available at the website and submit the same, after duly filling and signing it, at the nearest branch or office of the lender.

In case the applicants are not comfortable with the online mode of application, they can visit the nearest branch or the office of the lender any time at their convenience during the office hours or working hours of the lender and can apply for an SME loan there.

They can also contact the lender for any queries relating to the application process or any information that they may need regarding the application process (application fees, documents needed, time taken for processing the application, etc.).

FAQs – SME Loans