What is SME (Small and Medium Enterprise) Loan?

Running a business can be challenging, especially for SMEs (small and medium enterprises). Whether you’re keeping up with inventory, growing your operation, purchasing new equipment, or funding business growth, this is where the SME loan comes in.

So what is SME loan meaning? To be precise, the SME loan refers to a financial product aimed at small and medium businesses. It offers working capital to sustain, grow, or stabilise a business. If you are wondering what is SME loan is or how to apply, this blog mentions everything to get started.

What Does SME Loan Mean?

Let us understand what SME business loan is all about. SME loan is basically credit or funding given to Small and Medium Enterprises. Such businesses are the backbone of the Indian economy and support millions of jobs. Special schemes from both government and private lenders are available for these ventures.

SME loans in India are mostly unsecured loans, so this means no collateral is necessary. You can use the loan amount for:

• Purchasing raw materials
• Office or factory expansion
• Paying salaries
• Buying machinery
• Improving cash flow

Also, these are based on the health of the business, its creditworthiness, turnover, and operational history.

Types of SME Loan Schemes in India

There are a variety of SME loan schemes available in India, some government-supported, some offered by the private sector. The right one for your business will depend on its size, age, and funding needs.

Below, let us discuss both government-backed loan schemes and also some private banks that offer such loans:

Popular Government-Backed SME Loan Schemes

Here are a few government-supported MSME loan schemes:

• CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises)
• MUDRA Loans (Micro Units Development & Refinance Agency)
• PMEGP (Prime Minister’s Employment Generation Programme)
• Stand-Up India Scheme

SME Loan Schemes from Private Banks

Leading banks also offer tailor-made SME loans such as:

• SBI SME Loan
• HDFC SME Loan
• Axis Bank SME Loan
• Tata Capital, and more.

You can find all these loan types in one place at My Mudra and compare them easily.

Best SME Loan Providers in India – A Quick Comparison

Are you thinking about which bank is best for MSME loan? Then here is a quick comparison of the best SME loans India:

Understanding SME Loan Eligibility Criteria

While the exact eligibility requirements may differ from lender to lender, the basic rules for small business loans generally remain the same.

• Purpose: The purpose of the loan application must be to meet business requirements, like acquisition of machinery/equipment, raw materials, etc., working capital, marketing of their products, product line expansion, or entering a new market/geographic location, etc.
• Age: The applicant's age is between 25 and 55 years.
• Stability of Business: The age of the business is very important to the lenders.
• Evidence: The petitioner should submit the business IT returns for at least the past year.
• Business Operating History: Many lenders want the business to be operating for a minimum of two to three years.
• Collateral: A few lenders may ask for collateral to lend more money or to lend to higher-risk borrowers. However, as stated, mostly these loans are collateral-free.
• Government Scheme Eligibility: Certain government-backed schemes may have different or additional eligibility criteria based on the SME size and sector.
• Business Experience: Borrowers must be operating in the same line of business for a minimum of 3 years and have a minimum of 5 years total business experience.

By meeting these criteria and having a strong loan application, you can secure an SME loan scheme.

SME Loan Interest Rate & Repayment Tenure

Interest rates matter when you choose a loan. Here’s what you need to know about the SME loan interest rate:

Typical SME Loan Interest Rate

In general, the rates range from 9% to 24% depending on:

• Credit score
• Business cash flow
• Lender policy

For example, an HDFC SME loan may have lower rates for pre-approved customers. But other banks and mostly NBFCs, may provide faster approvals at slightly higher rates.

Flexible Tenures for SME Business Loan

The tenure for SME loans India is generally between 12 and 60 months. While a longer term means lower EMIs, it translates into a substantially higher total interest paid. To find out what fits your cash flow, use My Mudra’s EMI calculator.

How to Get SME Loan?

To start the process of SME/MSME loan apply online, follow these steps:

• Compile Business Documents: Collect required documents like company registration certificates, income statements, tax returns, and business plans.
• Find Lenders: Search and choose lenders, like banks, NBFCs, and government schemes, that meet your purpose.
• Submit the Application: Complete the loan application form of the lender you have selected. Make sure it contains your business information, the amount of the loan, the loan's purpose, and also what you may be using for collateral.
• Document Submission: Submit applications and necessary documents to the lender.
• Credit Review: Lenders will conduct a credit check and review the strengths of your business.
• Approval and Disbursal: After your SME loan scheme approval, it will be disbursed, and you can then put it to use in your SME.

The process might be lengthy. But the best part is My Mudra simplifies the entire process of how to get SME loan, and here is how:

• Visit My Mudra Website
• Select SME Loan in the “Business Loans” category
• Provide your business information and loan amount
• Compare offers from leading banks  and NBFCs such as SBI, HDFC, Axis, and Bajaj Finserv.
• Upload all the required documents, such as Aadhaar, PAN, bank statement, GST returns, etc.
• Enjoy instant approval and disbursal in 24-48 hours
• The entire process is completely digital, secure, and supported by experts.

Documents Necessary for MSME Loan Apply Online

• Business registration documents
• Identity and address proof of promoters
• Financial statements
• Bank statements
• Income tax returns
• Business plan
• Collateral documents (if applicable)

Final Words

A well-timed SME loan can turn the trajectory of your business. Whether it’s the purchase of new machines or opening a new outlet, funds should never come in the way. With My Mudra, applying for an SME loan online is now quicker, more convenient, and more transparent than it's ever been in the past. So, are you ready to fuel your business with the right financial support? It is time to apply for an MSME loan now.