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About Small and Medium-sized Enterprises (SME) Loans

Small & Medium scale industries play an important role in the economic development of a country. Apart from strengthening the exports of a country, they provide employment to millions of Indians. The Indian Government has many schemes in place for the establishment and development of the Micro, Small &Medium Scale industries all over the country.

Initial capital and working capital are required to run any industry smoothly. Numerous industrial financing institutions and banks, both public sector and private sector, have customized Small &Medium-sized Enterprises (SME) loan products to aid the MSME sector in their growth.

Small And Medium Sized Enterprises Loans
Small And Medium Sized Enterprises Loans

What is an SME loan?

SME Loans are given to entrepreneurs, either aspiring to set up a new business or modify and expand a current establishment. SME loans can be availed even for technological upgradation of a particular process. Some businesspersons would like to avail an SME loan to upgrade their manufacturing unit to adapt greener energy alternatives. These are some of the purposes for availing an SME Loan.

Where to get an SME loan?

1. Government Banks or PSU Banks (SBI, Bank of Baroda, Punjab National Bank, etc)

2. Private Banks (ICICI Bank, HDFC Bank, AXIS Bank, etc)

3. NBFCs (Mahindra Finance, Bajaj Capital, Fullerton, Tata Capital etc)

The government disburses financial loans to various SMEs through dedicated schemes built for this purpose. Entrepreneurs can approach various PSU Banks that are authorized to give loans under these schemes. Banks also have their own MSME loan products.

How is an SME loan processed?

As mentioned earlier, proprietor of an established business or an aspiring entrepreneur can approach a bank or an NBFC for an SME Loan. While applying for an SME loan, one should have done the basic groundwork with regards to the type of loan, the amount required, the eligibility criteria etc. The process usually consists of the below steps:

1. Prepare a comprehensive summary of the business and purpose of the loan

2. Attach supporting documents to establish the worth of your business idea or establishment

3. Briefly explain the benefits you are expecting to derive out of the loan

4. Promptly fill the necessary forms required by the financial institution and duly submit it to the authorized person

The SME Loan process is quite simple and straightforward in most banks. With sufficient documents to support the purpose of your loan, it would be processed quicker and the funds disbursed to your account. Banks look into a few eligibility criteria while processing your SME loan

  • Proprietorship of the firm – Sole or Partnership
  • Nature of the holdings – Private limited company or Public limited company
  • Nature of business – Manufacturing or service units
  • Profitability of existing businesses – steady profit for 2 or more years
  • Monetization factors of new business – how soon can a new business become profitable
  • Registration and recognition of the establishment under Government norms

The above factors help the banks/NBFCs in deciding the creditworthiness of the business and hence the approval of loan. The applicant should take special care in highlighting these factors in their loan application.

Types of SME Loans

SME Loans are of two types –

  • Secured Loans – where the banks need you to submit substantial collateral or guarantee. The rate of interest on these loans is lower.
  • Unsecured or Collateral free loans – where the loan is processed based on a healthy existing relationship with the bank or the profitability of the business. The rate of interest on these loans is relatively higher.

Once the bank has approved the loan, it is disbursed in various forms viz;

  • Initial capital in the form of term loan or demand loan
  • Working Capital in the form of cash credit, overdraft etc;
  • Overdrafts based on Bills of Purchase
  • Export credit facilities
  • Bank Guarantees
  • Foreign or Inland letter of credit

Banks offering SME Loans

State Bank of India (SBI) :

Being the go-to bank for Indians at all times, SBI has a great number of products to boost the SME sector. It allocates a major portion of its lending to SME sector through various schemes. SBI is also the nodal representative for various government schemes announced to boost MSME finance.

Loan NamePurposeNature of loanAmount Eligibility
SME eBiz LoanFinancial assistance for registered sellers on e-commerce platformsCash CreditMin.Rs.50 lakh - Max.up to Rs.500 lakhs
Simplified Small Business LoanBuild-up of existing assetsOverdraft facilityMin.Rs.10 lakh - Max.up to Rs.25 lakhs
Stand Up IndiaLoan to women and SC/ST for setting up for Greenfield projectsComposite LoanMin.Rs.10 lakh - Max.up to Rs.1 crore
SME Smart ScoreWorking capital needs and asset developmentCash Credit or Term loanMin.Rs.5 lakh - Max.up to Rs.50 lakhs
SME Credit CardSimple finance to small units to meet credit requirementsCash Credit or Term loanMax.up to Rs.10 lakhs
Doctor PlusGiven to qualified medical practitioners to set up/expand their clinical practiceMin.Rs.10 lakh - Max.up to Rs.5 crores
Medical Equipment FinanceFor purchase of medical equipment & funding of ancillary equipmentTerm loanMin.Rs.10 lakh - Max.up to Rs.20 crores
e Dealer Finance SchemeTo provide finance to authorized dealers for purchase of inventoryCash creditNeed based
e Vendor Finance SchemeTo finance receivables of vendors of reputed Corporates/Industry majorsCash creditNeed based
ABL & ABL CREFor asset build-up, short term working capital, capacity expansion/modernizationDropline overdraftMin.Rs.10 lakh - Max. up to Rs.20 crores
Fleet FinanceFinance for purchase of new vehicles or a fleet of vehiclesTerm loanMin.Rs.50 lakh - Max.up to Rs.10 crores
PM Mudra YojanaWorking capital needs, expansion and modernizationWorking capital or Term loanMax.up to Rs.10 lakhs
Export Packing CreditFor fulfilment of export orders - purchase of raw materials, processing, packing and warehousingPre-shipment finance extended as working capitalNeed based
Lease Rental DiscountingTo balance liquidity mismatchTerm loanMin.Rs.10 lakh - Max.up to Rs.50 crores
Warehouse Receipt FinanceTo finance traders/owners of goods/manufacturers for own processing against warehouse receiptsCash credit/working capital/demand loan/revolving demand loanNeed based

ICICI Bank SME Loans :

ICICI Bank provides hassle-free finances to set-up new businesses or to expand an existing one. It understands the importance of finance in the development of any business venture. Hence, it has designed various products to suit your needs.

Loan ProductNature of Loan
Loans for SME Segment - With Collateral

1. Cash credit or overdraft facility to meet working capital requirements

2. Letter of credit to facilitate pre-shipment and post-shipment finance

3. Bank guarantees

4. Term loans/demand loans for purchase and development of assets

5. Business expansion/modernization needs

Collateral Free Loans

1. Smart Business Loans - Unsecured overdraft facility of up to Rs. 25 lakhs

2. CGTMSE - Cash Credit and Term loan of up to Rs. 1 crore under the CGTMSE scheme collaborated by SIDBI

Pre-qualified loans Micro Enterprise Credit

1. Pre-qualified limits for SMEs up to Rs. 50 lakhs based on transaction history

2. Finance in the form of overdraft facility/bank guarantee/letter of credit for working capital purposes

3. Term loans for purchase or development of assets

4. Term loans for business expansion, modification and modernization

Loans for Merchant establishments

1. Funding to retailer/merchants based on the number of credit card swipes

2. Overdraft facility to meet working capital needs

3. Funding available for new merchants too upon fulfilling specified conditions

HDFC Bank SME Loans :

HDFC Bank can be regarded as the only bank which offers complete banking solutions to any business entity. Starting with a wide range of current accounts to dedicated merchant services to its customers, HDFC Bank sets a high standard in meeting the needs of entrepreneurs. HDFC Bank offers close to 15 types of Current accounts to meet your daily banking needs. Financing can be obtained in the form of

  • Working Capital Finance
  • Working capital for Contractors
  • Commercial / Construction Equipment Finance
  • Working Capital Finance to Transporters
  • Term Loan
  • Business Loan
  • Letters of Credit & Bank Guarantees
  • Loans for Professionals
  • Loan Against Assets
  • Healthcare / Medical Equipment Finance
  • Commercial Vehicle Finance
  • Rural Loans
  • Dealer Financing

IDBI Bank SME Loans :

As the name suggests, Industrial Development Bank of India, IDBI Bank Ltd, has been the pioneer in designing and implementing numerous schemes for the betterment of the SME sector in India. With the sole purpose of taking financial aid to every customer and every business establishment, IDBI Bank has ensured maximum customer reach through its numerous branches and ATMs spread across the country. IDBI Bank has solutions for both the financing of a business as well as its day to day banking needs. Some of its products are:

  • Property Power - Loan Against Property
  • Loans to Small Road & Water Transport Operators
  • Sulabh Vyapar Business Solutions
  • IDBI Bank Vendor Finance Program
  • Laghu Udhyami Credit Card
  • IDBI Bank Loan for Service Sector
  • IDBI Bank General Credit Card Loan (IDBI GCC)
  • IDBI MUDRA Loan
  • Stand Up India

These are some of the leading MSME loan products available in the market. Every bank has its own range of loan products for MSME borrowers. Some of the banks also act as nodal representatives for various government schemes announced to catalyse the growth and development of the MSME sector in India.

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