WHAT IS SME LOAN?
Loans which cater to the financial needs of the Small and Medium Enterprise (SME) segment are known as SME loans. This segment is responsible for providing huge employment opportunities at relatively lower capital costs and at the same time, also aids in industrialisation of backward and rural areas.
Small and mid-size enterprises (SMEs) are businesses that maintain revenues, assets or a number of employees below a certain threshold. Each country has its own definition of what constitutes a small and medium-sized enterprise. Certain size criteria must be met and occasionally the industry in which the company operates in is taken into account as well.
SME finance is the funding of small and medium-sized enterprises, and represents a major function of the general business finance market – in which capital for different types of firms are supplied, acquired, and costed or priced.
* Small and mid-size enterprises (SMEs) are businesses that have revenues, assets, or a number of employees below a certain threshold.
* Each country has its own definition of what constitutes a small and medium-sized enterprise.
* Each country may also set different guidelines across industries to define what a small business is across sectors.
* SMEs play an important role in the economy, employing vast numbers of people and helping to shape innovation.
* Governments regularly offer incentives, including favorable tax treatment and better access to loans, to help keep them in business.
WHAT DOES AN SME LOAN MEAN?
An SME loan, a type of business loan, is designed for those who are planning to start their own business to make a progressive impact on the industry and society. Such credit facilities make it easier for promoting and supporting local industries and the overall economic growth.
The borrowers must repay the loan amount at a fixed interest rate. SME loans stand as the best option to raise funds for anyone who is looking to start a business and for medium enterprises to further expand their business.
UNDERSTANDING AN SME LOAN.
Small and Medium Enterprises (SMEs) play a major role in most economies, particularly in developing countries. SMEs account for the majority of businesses worldwide and are important contributors to job creation and global economic development. They represent about 90% of businesses and more than 50% of employment worldwide. Formal SMEs contribute up to 40% of national income (GDP) in emerging economies. These numbers are significantly higher when informal SMEs are included. According to our estimates, 600 million jobs will be needed by 2030 to absorb the growing global workforce, which makes SME development a high priority for many governments around the world. In emerging markets, most formal jobs are generated by SMEs, which create 7 out of 10 jobs. However, access to finance is a key constraint to SME growth, it is the second most cited obstacle facing SMEs to grow their businesses in emerging markets and developing countries.
TYPES OF SME LOANS.
1. Initial capital in the form of term loan or demand loan.
2. Working Capital in the form of cash credit, overdraft etc;
3. Overdrafts based on Bills of Purchase.
4. Export credit facilities.
5. Bank Guarantees.
6. Foreign or Inland letter of credit
TYPES OF BUSINESS LOANS FOR SMEs.
Business Term Loan. This is what most people have in mind when they talk about business loans….
* Business credit lines/overdraft facilities. …
* Invoice Financing / Invoice Discounting / Factoring. …
* Purchase Order Financing. …
* Equipment and Machinery Loan. …
* Other business loans. …
DIFFERENCE BETWEEN SME LOANS AND BUSINESS LOANS.
Money makes the world go round, and nowhere is that truer than in the world of business. To run a successful business, all entrepreneurs require capital, which can come from different avenues – venture capital, loans, or family and friends.
SME and Business loans offer a good way to finance small and medium enterprises (SME). If you’re looking to fund your small business but aren’t sure which route to take.
WHAT ARE BUSINESS LOANS?
Business loans are typically issued to established businesses for financing various needs, such as launching new products, expanding the business, buying equipment, warehousing needs, renting more property, hiring new employees, and so on. Short-term business loans are, as the name suggests, good for financing short-term needs. In fact, they’re also useful in establishing a good credit history, which can help you with future loans.
WHAT ARE SME LOANS?
SME loans are meant to help small and medium businesses expand or finance daily operations. SME loans can also be used for buying equipment and inventory and increasing working capital. The loan amount can also be used for hiring fresh talent, marketing purposes, legal services and so on.
ADVANTAGES OF TAKING AN SME LOAN.
* SME loans include flexible repayment tenures ranging from 12 months to 60 months.
* No need for collateral to avail SME loans.
* Quick and easy online application process and shorter approval time.
* Minimal documentation
What are the interest rates on SME loans?
Types of Fees Applicable charges
Rate of interest 17% p.a. and onwards
Processing fees Up to 2% of the loan amount (plus taxes)
Bounce charges Up to Rs. 2,000 (Inclusive of taxes)
Penal interest 2% per month
Though the specific eligibility criteria may vary among lending institutions, they mostly have a set of essential rules for SME loans. Please take a look at the particular lender’s criteria before applying to reduce the possibility of rejection.
* Purpose: The purpose of the loan application must be to meet business requirements, such as purchasing machinery or raw materials, availing working capital, marketing products/services, expanding the employee base or product line, entering a new geographic location, and many more.
* Age: The applicant’s age must be between 25 years and 55 years.
* Experience: The applicant must have a minimum of three years’ business experience.
* Proof: The applicant must provide at least the past year’s business IT returns.
HOW TO APPLY?
Once you choose the lender to apply for SME loan, you have to collect the SME loan application form from that lender. However, the following fields can be expected.
* Name of the company
* Date of incorporation
* Registration address of the company
* Operating address of the company
* Contact number and e-mail address of the company
* Industry code
* Permanent Account Number (PAN)
* GST number
* Bank account details
* Existing loan details if any
* Parent company/associates/group entity details
* Annual accounting report with relevant profitability/liquidity-oriented details
* Personal guarantee letters from directors/partners/promoters
* Business registration documents
* Registration certificate of business as SME
* A copy of sales tax returns filing documents
* A copy of income tax returns filing documents
* Any sector-specific licenses, such as drug license in the case of a pharmaceutical enterprise
With Bectic Finance Company Limited you could be pre-approved for a small business loan in minutes, unlocking a valuable cash injection to help your SME grow – so make sure you contact us today.
At Bectic Finance Company Limited, we provide Bank instrument services to our clients global- UK, USA, UAE, Europe, India, China, Asia, Middle East and Africa.
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