SME finance is a category that is witnessing tremendous growth with the startup and entrepreneurship boom in India. There are several options available with regard to SME Finance that you can check out. However, there are a few things that you should always know about loan for SMEs before you apply. These loans are often necessary for successfully running and growing businesses and will help in maintaining cash flows and also in expansion. Progress should not be hindered due to lack of funds.
SME loans are basically working capital loans which are given to small and medium enterprises that have a financial crunch or are looking for more funds to scale up. SME loans have shorter tenors which usually max out at 5 years. Here are the key things to know about these loans-
1:-Purpose of Loan- You should always have a clearly defined and illustrated objective for taking the SME loan. You will have to present a plan of action to the lender in most cases and this will also help you utilize the funds judiciously. For instance, you may want to hire more professionals for projects or build up inventory or even take care of day to day expenditure till your finances stabilize. The goal should be clearly chalked out. Always have a proper operational blueprint for yourself as well with regard to optimizing resources suitably and repaying the loan.
2:-Interest Rates- The SME loan interest rates vary from one lender to another and you should do your homework with regard to finding out the best deal for yourself. Compare multiple lenders and the interest rates that they offer. This will help you choose the best option for your needs.
3:-Lender Types- You should not stick to conventional lenders like public or private sector banks. You should carefully evaluate offers from NBFCs and other financial institutions which may have better deals for enterprises as well.
4:-Collateral Requirements- In many cases, you can find SME loans without collateral. Many lenders offer these loans without asking for any collateral against the loan. However, just to make sure, you should always check this aspect before applying. These are loans that are easier to obtain since they have faster approvals and minimal documentation requirements.
5:-Flexible Financing- In some cases, you can check out options like a line of credit in order to flexibly use funds and repay conveniently as well. A line of credit facility helps you pay interest only on the amount that you use within the credit limit and the interest component has to be repaid every month while the principal can be repaid at the end of the tenor. This is a flexible way of using the money along with repaying it.
These are some of the important aspects of SME loans that prospective borrowers should know and understand prior to applying. There are several lenders offering SME loans at competitive rates and these can help businesses scale up or take care of necessary expenditure in a hassle free manner.