What Is SME Loan? Guide to SME Finance

What Is SME Loan? Guide to SME Finance

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Small, medium and micro enterprises, abbreviated asSMEs or MSMEs, are a major contributor to our economy, so much so that they are known as its backbone. One of the most common challenges these enterprises face is a lack offunding to expand or improve operations. This is why SME loans and MSME loans have steadily gained popularity, owing to their ease of availability, over the years.

What Are SME Loans?

An SME loan is a type of business loan that provides funds for meeting the borrowing needs of small and medium-sized enterprises. A small business in its infancy and a medium-sized business looking to expand, require a helping hand- the SME loan does precisely this. An MSME/SME business loan can help enterprises cover their short-term expenses like working capital, purchasing raw material, or it can be used for long-term requirements like business expansion. In fact, startups can also avail these loans.

Here is the guide to the crucial things that should be kept in mind when availing SME loans.

Eligibility

All micro, small and medium enterprises are defined under the MSMED Act, 2006 with a specified turnover. All such businesses can avail theloan. The SME loan eligibility criteria may differ from one financial institution to another. Hence, it is recommended that youcheck the SME loan eligibility criteria set by a lender before applying for the loan. This will reduce the chances of your business loan application getting rejected. Before applying, do keep in mind that your CIBIL score is important to your business loan eligibilityand should be paid attention to as such. Also keep some basic documents ready before applying for an SME loan.

Collateral

A majority of financial lenders in the market will ask for security or collateral for an SME loan. However, if you want to keep your valuable assets safe,look for a lender that will extend a loan without requiring you to put down collateral. In fact, most SMEs prefer an unsecured business loan given their scale and unavailability of assets.

Processing Fees

The financial institution charges the processing fee at the time of SME loan application processing. When going for a lender, choose one that has a low processing fee.

SME LoanInterest Rates

While availing an SME loan, you must make a note of the business loan interest rates charged by the lending institution. You should know that lower the interest rate, lower will be the loan repayment burden on you. It is always best to contact lenders directly to get up-to-date interest rates before you pick the lender of your choice.

Before applying, check eligibility, upload the necessary documents and get the loan sanctioned.

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