How To Take an SME Loan in India?

How To Take an SME Loan in India?

SME is an abbreviation for Small and Medium Enterprise. SME loans help cater to the financial requirements of small enterprises. It helps them reach their goals by providing sufficient funds. These loans are also known as MSME loans. Small startups, businesses, and women entrepreneurs can avail these short-term loans. We will discuss SME loan details in this article.

Documents Required

You will have to present a few documents while applying for an SME business loan in India-

• Identity Proof – This could be an Aadhar card, driving license, Voter’s ID, PAN card, etc.

• Address Proof – You can submit an Aadhar card, Passport, Voter’s ID, Driving license, etc., as address proof.

• Business proof in the form of a Partnership deed, business entity proof, incorporation certificate, shops and establishment certificate, articles of association, etc., is needed.

• Bank statements for the past six months

• Company financials like balance sheet, profit and loss, tax audit report, etc., must be submitted by you.

However, remember that lenders may ask for additional documents depending on your application type.

Eligibility Requirements for SME Loans

Generally, most lending institutions have requirements like the ones mentioned below-

• Proprietors, self-employed individuals, partnership firms, private companies involved in trading, manufacturing, and services are eligible to apply for such loans.

• The borrower’s age must be a minimum of 22years, and the maximum age of the borrower should not exceed 62 years at the time of loan maturity.

• The minimum annual income of the business must be at least ₹1.5 Lakh and the maximum turnover of the business should not exceed ₹40 Lakh.

• The business should have been making profits for the last two years.

• Borrowers must have a total of five years of business experience and have been in the same line of business for three years or more.

The eligibility criteria for MSME/SME loans may differ from lender to lender.

Advantages of an SME Loan

• These loans have flexible repayment tenures starting from 12 months to 60 months.

• There is no requirement of any security or collateral to avail of an SME loan

• Such types of loans have a quick and easy application procedure

• The approval time is shorter as compared to other business loans in India

• Minimal documents are required

Features of SME Loans

MSME/SME loans can be referred to as both secured and unsecured business loans. In the case of collateral-free SME loans, borrowers do not have to submit any collateral or security to the lender.

MSME loan details and benefits are given below-

• Collateral-free loans of amounts up to ₹1 Crore.

• Short-term loans with a repayment tenure of a minimum of 12 months and a maximum of up to 5 years.

• MSME loans are provided by various financial institutions like Private and Public sector banks, NBFCs, RRBs, Small Finance Banks, etc.

• Different lenders may charge extra processing fees for SME loans. Go with the one who offers the loan at a less amount.

The loan amount that financial institutions offer depends on the borrower’s profile and credit score, creditworthiness, repayment capability, and financial stability.

Based on the loan scheme you want, the interest rate may vary as the lender has to consider several factors before giving a business loan in India, such as collateral provision, loan amount, tenure, etc. But generally, interest rates may range from 8.40% p. a. to 24% p. a.

How to Apply for An SME Loan?

Various financial institutions and lenders offer SME loans. Once you have chosen your preferred lender to apply for an SME loan, you must collect the application form and fill it out. You may expect the following fields in an application form –

• Name of the company

• Date of incorporation

• Registration address of the company

• Operating address of the company

• Contact details and email id of the company

• Industry Code

• Permanent Account Number

• GST Number

We suggest you fill out the application form online as it is quick, and you can do it from the comfort of your home.

Conclusion

Before applying for any loan, ensure that you meet the eligibility criteria. Different banks and other financial institutions offer different SME loan schemes. Research various SME loans and choose the one that suits you the best. SME loan details like interest rate, loan amount, tenure, etc., may vary per business requirements.