The growth of the Indian economy is in many ways synonymous with the growth of the SME sector. This is because the SME space is credited with contributing 40% to the total GDP of the Indian economy. Thus, growth opportunities naturally entail the requirement for timely and adequate funding. SMEs require SME loan in order to flourish and compete with the other established, big players in the industry. We shall now explore the SME business loan options that SMEs can avail to fuel their business.
The SME business loan segment can broadly be divided into two categories.
- SME Loans extended by private sector fintech lenders: Fintech lenders making extensive use of technological advancements are able to extend quick, unsecured loans at competitive interest rates to SMEs with digital documentation and speedy sanctions for multiple business needs namely business expansion, running of business operations, loan consolidation, working capital requirement, addition of new offices, branches or commercial units. The amount of business loans extends from as low as Rs 1 lakh to an upper limit of Rs 1 crore. The interest rates vary between 18-24% on reducing basis. The tenure of the loan varies between 6-36 months. Further, there is considerable flexibility in the repayment structure of the EMIs.
- The government introduced SME credit schemes: To cater to the unique funding needs of SMEs, the Government of India has launched new business loan schemes and given a fillip to the existing ones. Some of the Government announced financing options are:
- MSME Business Loans: This scheme extends financial assistance of up to Rs 1 crore to both new and existing MSMEs. It is primarily a refinancing scheme, offered by five authorized public sector banks, which grant the required funds to the borrower. The interest rate is dependent upon the nature of the business and the credit rating. The SME needs to produce GST documentation, IT paper, bank account statements for the last 6 months, ownership proof and KYC details. The details are then uploaded on the SIDBI website.
- MUDRA Loans: Micro-units Development and Refinance Agency (MUDRA) is a Government established organization to providelow-cost debt to micro-business units in the manufacturing, trading and services sectors on the novel concept of ‘funding the unfunded’. MUDRA Loans are refinanced business loans, sanctioned through empaneled lenders. The structuring of MUDRA Loans is as follows:
- Sishu Loans up to ₹ 50,000/-
- Kishor Loans up to ₹ 5,00,000/-
- Tarun Loans up to ₹ 10,00,000/-
- Credit Guarantee Fund Scheme for Micro and Small Enterprises: The CGMSE functions as a monetary support scheme for micro and small enterprises. It provides collateral-free credit for eligible, new and existing business undertakings. The limit of working capital loans is up to ₹ 10 lakhs without any collateral. However, for all credit facilities above ₹ 10 lakhs and up to ₹ 1 crore, primary security or mortgage of land and building associated with the business is obtained as security. Asset acquired through creditfinance, for business purposes, are also considered as security when the loan amount exceeds ₹ 10 lakhs.The business loans are granted by approved lenders.
- National Small Industries Corporation Subsidy: The NSIC subsidy for SMEsin the manufacturing space, applies to the following –
- Raw Material Assistance: This covers both indigenous and imported raw materials
- Marketing Assistance: Funds are granted to the SMEs for improving their competitive position and the marketvalue of their products and services.
- Credit Link Capital Subsidy Scheme for Technology Upgradation(CLCSS): This scheme finances upgradation of business processes by SMEs, harnessing technological capabilities. The goal of the scheme is to attempt to reduce the production costs for small business units so as to be price competitive, locally and globally. The scheme, being run by the Ministry of Small-Scale Industries, extends an upfront capital subsidy of 15% to eligible SME units. The ceiling limit on the subsidy amount is Rs 15 lakhs.
While there are a plethora of SME business loans to choose from, the ones offered by the fintech lenders beat the competition. This is because of the quick factor. Fintech lenders are able to provide instant credit to SMEs. Often SMEs come across a business opportunity that needs to be grabbed immediately and the urgent business loan is required. This is only possible by availing a business loan from a fintech lender.