The SME sector in India contributes heavily to this country’s GDP, which is about 30%. It also generates employment for around 110 million Indians. To help SMEs to grow further, financial institutions have come up with various lending options that focus on providing benefits to such organisations.

SME business loans are an example of such debt instruments that allow entrepreneurs to find the required financial support. Nonetheless, before moving ahead with the application, one should keep in mind some vital pointers to make a sound decision.

5 things to know while applying for an SME business loan

Here are 5 points that you should consider while applying for an SME business loan

Loan amount

The first point of consideration here is the loan amount. Since it will decide the debt you will incur, it is imperative to be prudent about it. In this regard, you can focus on two pointers –

  • Initially, you need to chalk out the purpose of this debt and how it will benefit your venture in the coming years.
  • Based on this decision, calculate the total financial shortfall and decide the loan amount accordingly.

Based on your eligibility, you can apply for a higher business loan amount, but repaying it may become difficult when the time comes. Hence, it is vital to be calculative.

Business vintage

To extend a business credit, financial institutions evaluate how many years that particular company is in operation. This determines their fate of securing credits. Usually, this period starts from 6 months and can go as high as a particular financier deems fit.

Since it is a lender’s specific criteria, you can check it beforehand to avoid facing any rejection.

SME status and certification

Since the Government of India has recently updated its definition of SMEs, it is vital to be wary about it while applying for SME business loans. The existing criteria of MSME only ponder on the investments made by an enterprise. However, the updated one focuses on a more composite structure, where investment and annual turnover are considered.

For instance, in the previous regime, any manufacturing organisation with an initial investment of up to Rs.25 lakh and a service enterprise with investments of up to Rs.10 lakh is considered to be a micro-unit. Whereas, in the current classification, irrespective of manufacturing or service sector companies, any organisation that has an investment of up to Rs.1 crore and an annual turnover of less than Rs.5 crore will be regarded as a micro-unit.

Based on this new classification, entrepreneurs need to get their SME certificates and documents in order before applying for credit. Simultaneously, keep in mind the other vital information you need to apply for a business loan to make this process smooth.

Interest rates and associated charges

It is vital to consider the loan interest rate and associated charges beforehand to get a clear idea of the total debt. Usually, the rate of interest differs from one lender to another; hence, it is ideal to compare various loan offers to find the most convenient one. Also, associated charges can shoot up the total cost of borrowing, so be mindful of them.

Repayment options

Flexibility in repayment will help to settle your debt without much difficulty. Usually, reputed financial institutions extend multiple repayment options and allow borrowers to choose the tenor and EMI according to their convenience.

Apart from these pointers, a credit profile is another factor to consider availing of any loan for business. It is a vital part of MSME loan eligibility, and lenders put special emphasis on that as it determines your creditworthiness as a borrower.

Along with this, you should also have a clear business plan in place, as it eases the loan application process. 

To simplify this application process further, reputed financial institutions like Bajaj Finserv extend pre-approved offers to their existing customers. This offer streamlines the loan application process and saves time. It is available on credit cards, business loans, personal loans, etc. Applicants can now check their pre-approved offer online through a few simple steps.

SME business loans have helped companies to find their required financial help without much hassle. Also, the benefits of MSME loan helps entrepreneurs to invest and expand their business without facing a cash crunch.

By Anurag Rathod

Anurag Rathod, as a blogger he used to spread all about app-based business, startup solution, on-demand business tips and ideas and so on.

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