GET SME LOAN IN 5 EASY STEPS

GET SME LOAN IN 5 EASY STEPS

INTRODUCTION

The full form of MSME is micro, small and medium enterprises; which is often shortened to SME or small medium enterprises. Such enterprises include small businesses and start-ups that are still budding. There are two categories of MSMEs, one of which includes those enterprises involved in manufacturing; and the other is involved in providing services. Previously MSMEs were defined in terms of the amount of investment; and MSMEs have been redefined on 13th May 2020. In terms of not only investment but also in terms of the annual turnover of enterprises.

Before 13th May 2020

TYPE OF INDUSTRYMICRO ENTERPRISES INVESTMENTSMALL ENTERPRISES INVESTEMENTMEDIUM ENTERPRISES INVESTEMENT
MANUFACTURINGLess than 25 lakhs25 lakhs to 5 crores5 crores to 10 crores
SERVICE-PROVIDERSLess than 10 lakhs10 lakhs to 2 crores2 crores to 5 crores

After 13th May 2020

TYPE OF INDUSTRYMICRO ENTERPRISESMICRO ENTERPRISESSMALL ENTERPRISESSMALL ENTERPRISESMEDIUM ENTERPRISESMEDIUM ENTERPRISES
——INVESTMENTANNUAL TURNOVERINVESTMENTANNUAL TURNOVERINVESTMENTANNUAL TURNOVER
Manufacturing and service providing industriesLess than 1 croreLess than 5 crores1 crores to 10 crores5 crores to 50 crores10 crores to 20 crores50 crores to 100 crores

SME LOAN

SME loans are quite popular as these loans are provided to such small businesses, start-ups, women entrepreneurs. And such so as to help them develop their businesses by lending money.  MSMEs are generally encouraged by the government as it enhances economic growth along with employment opportunities. SME loans provides a pillar of support to those small-scale entrepreneurs that do not have the necessary investment. But want to develop their enterprise, which is why SME loans are popular and encouraged.

NATURE OF SME LOAN

SME loans are usually short-term loans; however the exact term of loan depends on the lender. The loans are unsecure loans so as to make it easier for borrowing them to invest in small-scale business enterprises. Further, there is minimum documentation for applying for SME loan to make the SME loan process simpler and more convenient. The primary aim of SME loans is to improve credit flow in the MSME sector, hence also increasing employment opportunities and developing the economy as a whole.

ELIGIBILITY CRITERIA FOR APPLYING FOR SME LOAN

Since SME loans are generally unsecure, there is certain eligibility criteria required to be fulfilled for borrowing such loans. Such criteria would vary from one lending institution to another, but some of the basic requirements are expected in nearly all financial institutions. They include:

  1. The borrower must either be a self-employed professional such as doctor, lawyer, company secretary, chartered accountant, etc. or a self non-employed professional such as traders, manufacturers, proprietors, etc.
  2. The business must either be engaged in manufacturing or in providing service.
  3. The investment must not exceed 20 crores and the annual turnover must not exceed 100 crores.
  4. The business should have been operating for at least a period 3 years, and must be running profitably at least for 2 years before the application of such a loan if the object of the loan to be borrowed is for business expansion.
  5. The business must comply with the law and must not be opposed to public policy, that is to say it must be legally recognized.
  6. The borrower of the loan must be an Indian citizen and must be above the age of 25 years but below the age of 65 years.

FIVE EASY STEPS TO GET SME LOAN

These are five easy steps that you need to follow to easily get your SME loan to develop your MSME enterprise:

  • KNOW YOUR NECESSITY: Before apply for SME loan or any business loan, you must know your necessity that you must know what are the things required for the business. This will help in knowing the amount of loan required and also in understanding how the borrowed amount can be used appropriately. SME loans that are borrowed can be used to invest in the infrastructure of the firm, for fulfilling capital requirements of the business, installing new equipment like plant and machinery, to pay overhead costs, to pay employees and workers, and for marketing. Once you understand the costs of your business and the amount of loan you would require, it would make your process of applying the loan more organised and easier.
  • WEIGH LENDERS: you must carefully analyse the terms and conditions of each lending institution that offers SME loans before applying for the loan. Such terms and conditions include the
  • Rate of interest.
  • The term period within which you must repay the loan.
  • The minimum credit rating required for the borrower to avail the loan.
  • Any other formalities that the lender may request you to comply with.

This will help you in choosing the best option by the borrower to his/her advantage and according to his/her needs. You can understand this through the website of the lender/s or you can even call or visit them directly.

DOCUMENTS:

Once you decide the lender you would wish to borrow from, understand the documents required to be submitted to the lender and then keep the required documents ready so as to ensure smooth application of loan. The documents required to apply for SME loan would differ from one financial institution to another, however few basic documents that are fundamentally requested from the borrower for the application of SME loans are as follows:

  • Identity proof such as voter ID, driving license, Aadhar Card, PAN card, passport, etc.
  • Address proof such as ration card, passport, utility bill, etc.
  • Proof of business such as declaration of sole proprietorship, partnership deed, certified copy of Memorandum of Association, Articles of Association and Board resolution and Sales tax/GST related documents.
  • Proof of income and profit of business such as income tax returns, profit and loss balance sheet of at least 2 years before applying the loan, bank statement of at least 6 months before applying for the loan.
  • Two passport sized photos of the borrower.

APPLY FOR THE LOAN:

When the documents are ready, visit the website or directly contact the lender from whom you wish to avail your loan. Upload all the documents, read terms and conditions carefully and fill the forms appropriately for better chances of availing your loan.

AVAIL YOUR LOAN:

Once your documents are verified and your application has been approved, you will be able to avail your loan within a few working days. Thereafter you need to utilise those funds effectively and efficiently, and you must also pay your interest amount on time to ensure you maintain credit rating.

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