Small and medium enterprises, or SMEs, are one of the biggest revenue generators of the Indian economy. However, unlike already established businesses, they often need help running the business smoothly or expanding. One of the key reasons that this happens is because of the financial crunch. However, this should never put a stop to the big plans business owners have when it comes to expanding their business to take the help that is available – SME loans. Read ahead to find out how SME loans can help you and your business.
Advantages of SME Loans
Businesses of any scale may require funding at any given stage due to various reasons. It can be paying salaries smoothly, running inventory, or managing their relationships with vendors by making timely payments. However, just generating revenue to fulfill these requirements may not be enough. This is where the SME loans play a crucial role. A few of these many advantages you can get the benefit of by applying for SME loans are:
- Lower interest rates
Considering small businesses are already struggling, financial institutions offer SME loans on lower interest rates. Most of these loans are designed to be for the citizen’s welfare to back up their dreams. So, before the SME loan is allotted, a lot of factors are taken into consideration, and then only the loan is disbursed. These lower interest rates mean you won’t have to repay extra and can save money to build your business.
- Option to pick from different types of loan
Even though, as a small business, you will get a lot of options to pick from whenever it comes to applying for SME loans, you will still have to consider which one is right for you. There are two different types of loans you can go for secured loans and unsecured loans. In secured loans, you will have to put your property or any other item as collateral, whereas in unsecured loans, you won’t have to provide anything as collateral.
- Flexible repayment options
There are a lot of competitive SME loan options for you to pick from. There are great offers when it comes to interest rates, EMIs, and such. Taking into account that you are planning to expand your business while keeping the finances on track, SME loans with flexible repayment options are one of the best ways. It will help you control your finances and expand without facing any hurdles.
- Gets disbursed easily
Banks and financial institutions, private or government, easily disburse SME loans. To ensure this, you must prepare all your documents without problems. There are both online and offline loans available, and you can apply whichever you find the most suitable.
- Mergers and Acquisitions
SME loans can be utilised for acquiring or merging with other businesses. This can lead to increased market share, synergy benefits, and access to new customer segments. This will also play a crucial role in expanding your business.
How to Know If Your Business is Eligible for the SME Loan?
To avoid wasting time, it is essential to prepare your application in advance and ensure that there are no errors. For approving the applications, there are a few specific things that lenders check, based on which the approval is given. Below are a few key points that play a crucial role in determining whether your business is eligible for the SME loan:
- SME loans are designed for small and medium-sized enterprises. The definition of small and medium-sized can vary by country and industry. Generally, businesses with a limited number of employees and annual turnover within a specific range are considered eligible.
- Lenders often prefer to lend to businesses with a proven track record. While some lenders may consider start-ups, many prefer companies that have been operating for a minimum period, often at least one to two years.
- Your business’s credit score is a crucial factor in determining eligibility. Lenders will review your business’s credit history, payment patterns, and outstanding debts to assess the level of risk they would take by lending to you. A good credit score enhances your chances of approval.
- Lenders also evaluate your business’s debt-to-income ratio, which measures how much debt you are in compared to your income. A high ratio may raise concerns about your ability to manage additional debt.
- A well-structured and detailed business plan can boost your eligibility. It should outline your growth strategy, market analysis, and financial projections, showing that you have a clear vision for your business’s future.
- Lenders may consider certain industries riskier due to market volatility or regulatory issues. Businesses operating in high-risk sectors may find it more challenging to secure an SME loan.
From Where Can You Apply for the SME Loan?
You can obtain SME loans from various financial institutions that offer SME banking services. Here are some sources from where you can access SME bank loans:
- Most commercial banks have dedicated SME banking services that cater to the financial needs of small and medium-sized enterprises. The banks offer loan products, including working capital loans, equipment financing, trade finance, and business expansion loans tailored to the unique requirements of SMEs.
- With the rise of fintech, several online lending platforms have emerged that offer quick and streamlined access to SME loans. These platforms often have simplified application processes and may have different eligibility criteria than traditional banks.
- Particularly useful for micro-enterprises and startups, microfinance institutions provide small loans to help entrepreneurs get their businesses off the ground. These loans are generally more accessible to those with limited credit history or collateral.
Availing SME loan is a beneficial decision for you if you are looking for additional financial help. You can run your business smoothly with the fund, pay your dues on time, merge, acquire other businesses, or even expand your business. If this matches your ideas, you should definitely check out HDFC Bank’s MSME business loan. If you are planning to buy any equipment or want capital to fund your business, HDFC Bank’s SME banking services are the right option to go for. Apply for the SME bank loan today and advance your business.