SME Loan

What Is the Meaning of an SME Business Loan?

SME stands for small and medium enterprises. Many business owners and even corporations are unaware of what SME business loans are. Companies classified in the SME sector can apply for SME loans. 

These loans are typically issued on a short-term basis to small business owners, women, and entrepreneurs. The length of an SME Loan varies according to the lending organization. Due to the unsecured nature of business loans, the qualifying conditions are minimal. Business owners can easily apply for SME loans online through websites such as FlexiLoans. 

Business owners can use these loans to purchase products or maintain a stable cash balance to cover day-to-day business costs.

Features of SME Loans

• Minimal Documentation:

One of the benefits of SME loans is their low reporting requirements. A conventional business loan can demand documents such as land deeds, financial statements, and a list of sellers, partners, or shareholders. SME loans do not have these requirements. Simple records such as financial accounts, GST information, and income tax returns that are readily available are the only requirements. Small companies need no travel from pillar to post to obtain these documents.

• Collateral-free:

Small business loans are mostly unsecured. That makes it collateral free. As an SME owner, you do not have to generate property documents or mortgage company facilities to obtain financing. Basic documentation and evidence of company transactions will suffice..

• Affordable:

Since SME business loans are primarily to assist small enterprises, their interest rates are also reasonable. Lenders can determine interest rates for SME loans by reviewing the company's past performance and loan repayment history.

• Adaptable tenure:

The tenure of these loans is set according to the convenience of the enterprises. For example, many SME loans are short-term and may have a duration of 6 months. Many loans can have a longer duration of about 36 months or more. It depends on the borrower’s needs.

• There are no prepayment penalties:

Additionally, most SME business loan providers waive prepayment penalties for early loan closures. Therefore, if you are willing to pay off the mortgage before the scheduled time, you can save money while incurring no further fees for early termination.

Benefits of SME Loans

NBFCs such as FlexiLoans have simplified the qualifying conditions for business loans for SMEs to expedite loan approval. These loans do not require borrowers to submit paperwork, which slows the loan approval process. Some benefits of the SME loan process are:

• Accessibility

Establishing a company in India can be very challenging. This is because of the seasonal demand for goods and the constant change in consumers’ buying behaviours. Often, small companies lack the necessary capital to cater to unexpected consumer demands. This is why SME loans can be beneficial for small and medium-sized businesses. 

Due to minimal paperwork requirements, company owners can get SME loans easily without wasting much time. SME loans are easy to manage with the help of NBFCs. Most NBFCs provide an online account for convenient access to loan information and account statements.

• Enhancement of cash flow

SME loans’ adaptability and rapid approval improve the overall cash flow of businesses. This can prove to be highly beneficial when you try to extend the company, meet seasonal financial obligations, or initiate a campaign. 

If you are concerned about the loan’s long-term consequences, keep in mind that most SME loans are used to finance immediate needs. As a result, you can effectively handle your business’s cash flow to avoid being burdened with long-term debt.

• Lower interest rates

In comparison to informal lending sources, financial institutions charge lower interest rates on SME business loans in India. As a result, a company will be at lesser risk than it would be if it received capital from informal networks. 

The interest rate is determined by the company’s feasibility, financial position, credit history, and loan period. A lower interest rate eliminates the need for a business to spend significant funds during repayment. This allows the business to focus more on business-specific needs and requirements.

• Complete control

Small companies often have urgent financial needs while doing business. Obtaining funds for such companies can be challenging at times. Venture capitalists and other investors often demand a share of company ownership. SME loans for businesses come to the rescue in these circumstances. These loans are excellent means for business owners who are seeking to pay off debts or prevent liquidation. 

It is essential to make the appropriate estimates and calculations when applying for or using an SME loan. Borrowers should use an SME loan EMI calculator to ensure a smooth application process. 

Additionally, the versatility of these SME loans extends to their repayment mechanisms. You should choose a repayment schedule that is compatible with your business’s cash flow. The repayment plans for these loans are very versatile, ranging from daily EMIs to bullet repayments.

Basic Eligibility Criteria

While applying for a business loan, you must fulfil the SME loan eligibility criteria. Here is the paperwork you must provide to ensure that your application is reviewed as quickly as possible. 

• An individual must be 21 years of age when applying for the loan and not more than 65. 
• MSME loans are available to individual corporations, sole proprietors, and private companies involved in trading, production, or services. 
• The applicant must have worked in the industry for three years and have at least five years of experience. 
• MSME loans are available to those businesses that have been running for at least a year and have monthly total sales of at least $2,000,000. 
• If the company has been in service for even more than 3 years, you can apply for an MSME loan. 
• Ensure that there are no errors in previous accounts and, as such, the company is tax compliant. 

Finally, verify that the paperwork is in order well in advance of applying for a loan with us and hold it in digital format so that it can be submitted during the application process.

How to Apply for an SME Loan Online?

A few years ago, starting a small business was a time-consuming process. Now, it is completely hassle-free. You do not have to go to many banks to find the right interest rate or stand in a queue for the approval of your paperwork. FlexiLoans provides unsecured SME loans at reasonable rates. Follow these steps to apply for an SME loan:

• Online application

Visit the FlexiLoans website and start the application process by entering all the necessary details accurately. The lender will use this information to determine your eligibility.

• Online submission of required documents

Upload all the necessary documents, including identity proof, address proof, bank statements, and business-related documents. After that, the lender will evaluate your business’s performance and operations to determine the amount of money you can borrow and the applicable interest rate.

• Loan disbursement

After checking the details and accepting the loan request, the lender will send you the loan agreement. Sign the agreement and get your loan request approved. The lender will send you the loan amount after you sign the agreement.

Documents Required for SME Business Loan

• Personal KYC: Proof of PAN Card Anyone's residential address: Rent agreement, driver’s licence, voter’s ID, ration card, Aadhaar card, passport 
• Banking: Last six months’ current account bank statement 
• Business KYC (anyone): GST registration certificate, shops, and establishment certificate 
• Financial documents (for loans in excess of Rs. 20 lakh): two years of audited financials, the most recent two years' ITR, and GST returns for six months.

SME Loans Fees & Interest Rates

Here are the processing fees and interest rates on SME loans provided by FlexiLoans:

Ways to Use SME Loans

When a company is in its early stages, even the smallest decision can have a significant effect. In such circumstances, funds should be carefully used. Here are some areas where you can use your SME loan to improve your business:

• Develop or Improve Your Website

A powerful online presence is necessary for every business in the modern era. Investing in the development or maintenance of your business’s website is an excellent use of funds. If you have an aesthetically beautiful and accessible website, you can get an unlimited number of visitors. Creating or upgrading a website does not require a lot of money, but if your website gets extensive exposure, the effects are incredible.

• Make Marketing Investments

Regardless of how good your service or commodity is, you must sell it if you want to sustain your business. Creating advertisements that tell people about your products is essential for increasing your profit. You must sell your goods or services both online and offline to get the best results. Investing a portion of your SME loan in publicity can be a groundbreaking decision for your business.

• Invest in New Software

As your company grows, you will need more resources to perform your tasks more efficiently. Different business tools complete a large number of tasks accurately and in less time. Therefore, if you want to do the same thing, you will need to purchase some software for carrying out various business procedures. Some of these software packages are very expensive. But, these packages can be beneficial for your business by enhancing the quality of your products and increasing the accuracy of your business procedures. As a result, you can use a portion of your SME loan to purchase these software packages.

• Purchase New Equipment

Alongside changing the time zone, you must adjust your company’s organisational structure, especially if it is a product-based business. To increase efficiency and meet customer demands, you must use machines that produce with perfection and reduce commodity costs and human labor. So try to invest in such equipment to boost your business. 

To make a business grow, one needs a workforce, technology, and finance. The fact is, if you have finances, you can acquire the rest without much effort. A smooth cash flow is the lifeline of any business.

Frequently asked questions