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Quick Business Loans for SME’s & MSMEs

By: Makemymoney

Each individual in this world is involved in one or the other economic/financial activity to fulfill his and his family’s present and future needs. Broadly, an individual can be classified into employee and employer. Employer (businessman) invests his money or capital and employ individuals (employees) to carry out his business activities. Unsecured small business loans these days is an easy way to access capital for new and small scale businesses. 

Whether his business is large sized or small scale, money (capital) is needed to set up and run any business. This can be done through own money or borrowed money (loan) or a combination of both.

The government in its broad policy wants people to start their own business. For that Ministry of Small and Medium Enterprise (MSME) provides start-up unsecured business loans through banks and financial institutions under various schemes. These loans are called Small and Medium Enterprises (SME) loans. These loans can be availed by sole proprietors, partnership firms, organizations, etc. Both manufacturing and service sectors can take this loan.

SME loans are classified into 3 categories-

Micro– Up to 25 lakhs are invested in plant and machinery in case of manufacturing, and up to 10 lakhs in case of the service industry.

Small– 25 lakh to 5 crores are invested in plant and machinery in case of manufacturing, 10 lakhs to 2 crores in case of the service industry.

Medium– 5 crore to 10 crores are invested in plant and machinery in case of manufacturing, 2 crores to 5 crores in case of the service industry.

There are specific loans for different sections of society like farmers, weavers, taxi drivers etc.

SME loans are of different types like Startup loan, working capital loan, loan for machinery, Mudra loan etc. All these loans are unsecured small business loans which mean no collateral, security or mortgaged is be provided to the bank. All these loans can be availed from almost all the leading banks in India.

The start-up loan is a loan that can be availed by a future businessman who has a business plan and wants to start their own venture. These loans are taken to set up the business.The loan amount is used for buying machinery, land and other expenses which has heavy cost value. The amount can also be used to pay expenses till business starts earning revenues, these expenses are salary, raw material, electricity bills. This is because there is a time gap between the start of business and time when it starts generating revenues Normally, repayment period for this type of loan is long, it is 3, 5, 10 years and so on.

The working capital loan is used to meet short term funding requirements like purchasing raw material, salary payment, taking advantage of the business opportunity, etc. SME loan helps small businesses, traders to get to funds when then there is a shortage of money. Tenure of this loan is short 6 months to 1 year.

Mudra loan is a special credit facility by the Ministry of Small and Medium Enterprises, Government of India, under this scheme, the loan is provided to micro business units 3 categories made-

  1. Shishu   – loan upto 50,000
  2. Kishore – loan upto 5 lakhs
  3. Tarun    – loan upto 10 lakhs

To promote micro enterprises “Shishu” is given, it is provided at a subsidized rate under mudra scheme.

Merits of SME loans

SME loans are unsecured loans which do not require collateral to be provided. This helps small business to get a loan easily.

As eligibility criteria being relaxed and there are not many formalities to be carried by the applicant. All this makes loan process fast, so SME loan is processed much quicker than other business loans.

For an availing loan, one should have a good credit history. A person without credit history finds it’s different to loan. By credit history, it means a good CIBIL report. But in case of SME loan, a person without CIBIL report can apply and avail the loan.

For availing loan, one should have good credit history. Person without credit history finds it’s different to loan. By credit history, it means good CIBIL report. But in case of SME loan, person without CIBIL report can apply and avail the loan.

In certain kind of SME loans, it is not necessary to have a specified objective of the loan. The loan amount can be utilized for any activity related to business.

How to get SME loan?

SME loan is availed through banks and other financial institutions. There are unsecured business loans in Delhi and other cities available through various Banking and Financial institution.

Before applying for SME loan, all business details should be ready for example- If you are taking the loan for setting up the business, you should be ready with all the details like type of business, goods to be produced, cost of setting the business. The market for your product estimated revenue business will generate etc. All things should be given in detail to the lender.

One should fill correct personal details in the application form otherwise it may result in credit problems in the future. That can also be the reason for rejection.

If you already have run a business, you are applying for a working capital requirement or business expansion you much provide past financial statements like P&L, Balance Sheet, etc.  They provide details of the profitability and stability of the business.

You need to provide KYC documents, like PAN card, Aadhaar and Voter cards are normally considered for KYC, having UDYOG Adhaar card is an advantage.

The person with a good credit history(CIBIL) finds it easier to avail the loan. But a person without CIBIL history can also avail SME loan.

Now coming to a most important factor in SME loan the rate of interest charged. SME loan interest rate is between 12% and 14%, although different banks charge different rates. The rate of interest on SME loan is much lower than other business loans. RATS under Mudra loan is 6% as it is subsidized by the government.

The government has been pushing banks to distribute SME loans. There have been too many linkages in case of SME loans. There have been too many defaulters in SME loans which in return have increased bad NPAs. If proper checks and controls are in place, this can be a huge hit.

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