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What is an SME loan? Know its Benefits and Eligibility.


SME loan

What is an SME loan? Know its Benefits and Eligibility.

A small business might require funding at different stages, including the launch, running operations, stocking up on inventory, and recovering from losses. Having established a small and medium-sized enterprise (SME), it is important to maximize the existing resource to the best of its ability. Although, there might be times when you still need some help to ensure things function smoothly.
In this case, some extra cash flow can make a huge difference. There are various ways to fund your business and an SME business loan might be the right fit for you.

Need for an SME business loan

Usually, a micro, small or medium-sized enterprise lacks the resources that an established company or business has. For instance, you are a Kirana store owner who saw his business boom during the pandemic. However, a lot of customers had purchased the products on credit and it becomes difficult to keep up with the demands. In such a case, an SME business loan can be of great help to your small business, enabling you to stock up on inventory and keep your business afloat. These small business loans are created keeping in mind the needs of SMEs. Therefore, SME loans are capable of addressing the financial requirements and are beneficial for a small business.

Let’s take a look at the benefits of a small business loan.

• Easy Accessibility

When it comes to business, one cannot predict the shortcomings they might face. In such times, it is important to act quickly and come up with the best possible solution to keep your business afloat and an SME loan might be the right choice. SME business loans have a quick turnaround time enabling you to put the funds into use and reap fast results. When time is of the essence, SME loans are the best option for your business. These loans can be approved in 24 hours.

• Low Documentation Needs

Things always get too complicated when it involves heavy paperwork and for businesses, it might get a little overwhelming to collect different kinds of documents. Traditional business loans may require a lot of documents such as property deeds, financial statements, a list of investors/owners, shareholders and so on. On the other hand, applying for an SME business loan requires only minimal documentation. You only need to provide documents such as your bank statements, income tax filings, GST information and other easily accessible documents. This makes the whole application process much easier for businesses.

• Collateral-free

When borrowing from traditional financial institutions, business owners are required to pledge securities against the loan amount. Many small businesses do not have many assets that they can pledge as security. On the other hand, SME loans do not require it. As a business, you do not have to pledge any assets such as your home to receive a loan. Therefore, a small business loan is a convenient option to receive funding.

• Flexible Repayments

SME business loans come with flexible options for loan repayment. Financial institutions and banks now understand the complexities faced while running a small business. When your profits start to rise, you might even want to repay the loan sooner. No matter the situation, with the help of flexible repayment options you can repay the loan depending on your business.

• Tax Benefits

A small business loan is beneficial for SMEs as it provides the borrower with tax benefits. When a business owner pays tax on the net income during the financial year, a few expenses are deducted from the gross amount to come upon the net income. One such deductible income is the EMI paid on the SME loan. Therefore, businesses can reduce their taxable incomes by a significant amount. You should check the interest rates and other charges to evaluate the tax benefits. In India, interest on a small business loan is tax-deductible. To take advantage of this benefit, you must keep accurate and up-to-date financial records for these payments to the lender.

What are the eligibility criteria for SME loan?

Having understood how SME business loans might allow you to revamp your business, you might be wondering if you fit the eligibility criteria. Unlike other loans, SME loans have simple eligibility criteria.

If you are a small or medium-sized business owner in India, these are the qualifying conditions you are required to meet:

• Applicants must be between the ages of 25 and 55.

• Applicants’ businesses must be older than three years.

• They must have submitted Income Tax Returns for the business for at least one year.

• Applicants must have a credit score of 750 or higher.

• The applicant must not have any past record of loan default in their or the business’ name.

It has now become convenient for all micro, small and medium-sized enterprises to find their desired funds for their requirements. These SME loans can provide benefits by getting them the funds in a short period and make use of these loans to transform and grow their business. It is crucial to plan out the repayment structure to have a seamless experience. Many financial institutions provide quick and hassle-free loans for various needs such as buying new equipment, improving working capital and so on.

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