Small and Medium Enterprises (SMEs) are classified broadly as Micro, Small and Medium Enterprises (MSMEs) in India. These businesses need funding at various stages of their cycle, from starting the venture and stocking the inventory to running the daily operations and recovering from unexpected losses. As an SME owner, you would want to make use of all resources at your disposal to keep your venture afloat and ensure its smooth operations, right?
Regardless of how efficiently you manage your resources, there can be instances when you will need financial assistance to run your venture. SMEs operate on limited working capital and often require financial support to scale up. Getting the necessary funds at the right time can make a huge difference. One of the simplest ways to get money would be through an SME loan.
What is an SME loan?
An SME is a popular form of credit offered by many banks and non-banking financial companies (NBFCs) across India. They are designed to meet the financing needs of small businesses. MSME loan eligibility criteria are less stringent than other business loans and require minimum documentation, which ultimately results in faster loan processing and disbursement.
The majority of SMEs do not have the financial resources available at their disposal like large corporations. Hence, many financial institutions provide you with the funds you need for your business, whether to stock up on inventory, pay wages to workers, buy a new machine for the business, and so on.
SME loans are flexible and accessible in comparison to conventional financing options. They can help you unlock the potential of your business without getting bogged down by rigid terms.
How to Find the Best SME Loan Provider?
Finding the perfect small business loan for your venture starts with researching the lenders. You should check out the MSME loans offered by prominent financial institutions and shortlist the ones that align with your needs. You can find several lenders in India that offer multiple small business loan schemes with varied terms and conditions.
Understanding the SME Loan Eligibility Criteria
Most lenders have their unique set of criteria for MSME loan eligibility, which play a major role in the approval of these loans. Before applying for a small business loan, you must check the eligibility criteria maintained by lenders to ensure your loan application gets approved. Lenders usually focus on the following factors when assessing the eligibility for small business loans:
- Business Age: Many lenders require a business to be operational for a minimum period of time, usually two to three years. It is vital to showcase the stability of your business and income.
- Annual Turnover: Lenders like to ensure the business has the capacity to generate ample income to not just cover the operating costs, but also repay the loan in a timely manner. The higher your business income is, the greater the loan amount you will be eligible for. Business income and cash flows have a direct impact on SME loan eligibility.
- Industry Experience: Demonstrating experience in your specific business line or industry can be a critical factor influencing the approval of your loan application. Having significant experience in the industry would highlight your understanding of the market dynamics, and lower the perceived risk associated with lending to your business.
- Geographic Location: The area where you live and where your business is would play a vital role in determining your eligibility for the loan.
- Existing Credit: Your eligibility for a new loan shall be impacted if you are already repaying other loans. Hence, you should try to pay off your existing debts before applying for a SME loan.
- Business Premise Situation: If you own your business premises, your odds of getting the small business loan application approved shall be higher.
- Business Banking: Good banking hygiene and healthy business transactions reflected on the bank account of your business would increase the chances of loan approval.
- Credit History: Your credit score and credit history would impact your loan eligibility. The total loan amount you can borrow and the interest rate available to you would be impacted by your credit score. Hence, if you have plans to apply for a loan soon, you should try your best to increase your credit scores.
Which Documents Do You Need to Prepare?
When applying for a small business loan, you must ensure all the appropriate documents are in place. Reputed lenders like Muthoot Finance require a pretty standard set of documents for these loans, including financial statements, tax returns, identity proof, address proof and legal documents.
Researching prominent lenders offering SME loans, going through their loan eligibility criteria and preparing vital documents would help you easily access funds needed for your small business. As a budding entrepreneur, you must prioritise the growth of your start-up by paying attention to its financial needs.
Author bio: The author is an experienced financial consultant. He has excellent experience in writing detailed and factual finance-related content. He has written articles about the financial industry in his blogs as well as for some other sites and magazines.
