Understanding Different Types of SME Loan Available in India
As per World Bank’s report, around 80% of industrial enterprises comprises of small, medium & micro-enterprises and employ over 117 million individuals and accounts for 40% of nations manufacturing output. Owing to the significant impact they have on the nation’s economy, much financial assistance has been extended by both the government and lenders in the form of SME loan options. If you are a budding SME owner, who intends to avail a loan to expand your enterprise’s operation, make it a point to learn all about SME loans beforehand.
For starters, the SME full form is small and medium enterprises and the financial assistance extended to them in the form of a loan is termed as SME loan. There are various types of SME loans which can be availed in India.
The following are popular SME loan options that are made available to budding entrepreneurs in India
Term loans: A popular SME loan option that is availed by individuals to meet their financial requirements. They can avail a long-term loan to purchase immovable assets like machinery, building or land. However, they can opt for a short-term loan to replenish their working capital.
Asset-oriented business loans: SME owners can avail an instant loan by mortgaging their assets like gold, shares, property or business asset. Through such an asset-oriented business loan, individuals would be able to avail a loan amount that would be based on the prevailing market rate of their property. The rate of interest levied on such loans is comparatively lower than that of unsecured business loans.
Point of sale finance: Depending on their monthly sales that were routed via EDC terminal, SME owners can avail a loan to finance their venture. The said loan option takes into account real-time data related to credit card sales and monthly debit to extend a loan to the borrowers. Also, additional credit can be availed by them by promoting cashless transactions.
Pradhan Mantri mudra yojana or PMMY: The MUDRA loan option is tailor-made to finance the requirements of SMEs. Borrowers can avail a loan of Rs. 50,000, Rs. 5 Lakh and Rs. 10 Lakh through the schemes Sishu, Kishore and Tarun respectively.
Being an unsecured government business loan schemes in India, it is one of the most sought after financing options for budding SMEs.
Cash credit: SME owners can avail the facility of cash credit by pledging their current assets like raw materials account receivable, stock in trade and unpaid invoices as collateral. Additionally, borrowers can leverage the cash credit facility as revolving credit and boost their working capital. Borrowers can also avail an overdraft facility as well from a financial institution where they already have an existing account.
However, if a borrower does not want to pledge their assets to avail a loan, they can seek financial assistance from financial institutions like Bajaj Finserv who provide medium enterprises business loans without any collateral.
Additionally, small and medium enterprise owners can opt for facilities such as invoice discounting to fund their business operation. Note that the sum of credit which can be availed may not be substantial or sufficient with such a mode of financing.
That being said, SME owners should find out all the necessary details and gauge their operational requirements to sync their financial requirements with a suitable loan option. As the terms and conditions to avail of each of SME loan and their respective rate of interest, tenor and repayment options tend to vary from lender to lender.
Disclaimer: The liability for the article solely rests with the author/brand. The content has not been created or verified by India TV channel and IndiaTVNews.com.
