How to avail SME business loan

What is a SME Loan?

Any loan which is taken to fulfill the financial needs of any individual/firm or an organization to start a new business or enterprise or for expanding an established business, providing abundant opportunities for employment at a low cost of capital, is an SME Loan.

Small and Medium Enterprise Loan helps in revolutionizing and industrialization of small towns, rural areas, and backward places. These kinds of loans are unsecured loans. When taken by small and medium sectors of business, they enhance the domestic production and GDP, thus increasing rate of exports, imports, and savings, finally contributing to the country's development and growth.

Features of SME loans

• Value can be up to Rs. 2 crores


• Loan granted in 3 days


• SME Loans come without collateral


• Flexibility in the tenure of Repayment


• No Prepayment charges


• No Hidden Costs

Benefits of SME Loans

There are many advantages of applying for an SME Loan:

• Raises the credibility of the applicant in the market


• Helps the businessman or the firm to manage his company and business better


• He remains in control of his business


• The working of the business moves swiftly and smoothly from planning to execution

SME Loans, Fees and Interest Rates

Interest rates customized as per the applicant	15 – 25 %
Processing Fees	1 – 2 % of the total loan amount
Tenure of the loan	Up to 36 months
Pre-closure charges	After paying the first EMI, it can be pre-closed at any point of time without any charges
Eligibility criteria	Turnover for three months should be more than Rs. 90000
Loan Amount	Varies from Rs. 50000 to Rs. 2 crores
Installments	Flexible to a monthly or even a bi-monthly installment system.

How to Apply for an SME Loan?

Every bank or NBFC needs some important and relevant information from the applicant in the application to apply for the loan, which is as follows:

Personal Details	Financial Details	Legal Details
Name of the company	Bank account details	Registration details of the firm
Date of the creation of the firm	Any other ongoing loan details	Registration certificate of the firm
Operating address and the official address if the firm	Other financial services applied for	Copies of sales tax return filing statements
Email address and contact details of the firm	Any security of the facility applied for	Income tax return filings to be attached
Industry code	Details of any parent or subsidiary company attached	In case it's a pharmaceutical company, then a drug license is required.
PAN Number	Profitability, liquidity and annual accounting details of the firm
GST Number

Eligibility Criteria to apply for SME Loans:

Who can apply for the SME Loan	Individual proprietors, self-employed, partnerships, private limited companies, for any business services, trading or manufacturing
Age of the applicant	Minimum age – 21 years and maximum years – 65 years
Minimum Annual Income of the firm	Rs. 1.5 lakhs
Minimum Turnover of the firm	Rs. 40 lakhs
Profit status	For the past 2 years, the firm should have been making profits
Experience of Business/Firm	The firm should be in a stable business for 5 years and in the same years for at least 3 years.

Documents required to apply for SME Loans

ID Proof	Aadhar Card, Passport, Voter's ID, PAN Card, Driving Licence, etc.
Address Proof	Aadhar Card, Voter's ID, Passport, Driving License, etc.
PAN Card	Individually of individuals and partners and of the firm
Financials of the company	Important audited reports like the balance sheet, profit and loss statement, tax return filings, VAT returns, tax audit reports, etc.
Bank Statements	Last 6 months bank statements
Proof of Business	Business entity proof, articles of association, shops and establishment certificate, partnership deed, incorporation certificate, etc.
Application Form	With all relevant details as mentioned above and should be duly signed and stamped

How to effectively use SME Loans?

Following are some smart ways to utilize SME Loans:

• Inventory Management: Approximately 31% of applicants use SME funds to invest in the firm's inventory, like buying modernized machinery, tools, replenish stock, manage dips, new product samples, and much more.


• Purchasing New Plant and Machinery: This requires heavy funding of up to Rs. 1 crore and can be used to buy updated, upgraded, modern, and technologically sound plant and machinery to expand or start a business.


• Capital Management: Many take the loan to add up to the firm's working capital, which caters to day-to-day expenses, salaries, other employment opportunities, marketing and sales, seasonal fall-outs, inflation, etc.


• Consolidating the debt: There could be numerous sundry debts that a new firm or an established business may have taken. This is costly for the businessman as it means more interest and a higher amount of principal. It is best to consolidate all these small loans as one consolidated debt and pay of the smaller ones to reduce the interest rates and enhance the working of the firm


• Further investment in sales and marketing: It is imperative to invest in the firm's propaganda and positive marketing to attract as many customers as possible and make the firm and its products a household commodity. This can only be done after religious and diligent marketing strategies that required funding that can be done by taking an SME loan.

Do’s and Don’ts when applying for SME Loans

There are certain do’s and don’ts that need to be taken into consideration before applying for an SME Loan:

DO’s

• To check and maintain the credit score.


• Sorting out and arranging for proper documentation


• Prepare a Business Plan and be ready with all details that maybe required


• Assess your requirements. Any over or under application of loan amount may result in future losses and increased debt

DON’Ts

• One should not apply with various lenders and should only stick to a few lenders.


• Existing debts should be immediately repaid, and the burden of debt should be reduced.


• Should be careful and diligent in choosing the right lender in terms of extra fees, interest rates, documentation, approval, and disbursal procedures. Thorough scrutiny and investigation should be done by the applicant.