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How to Avail an SME Business Loan?

Updated: Aug 04, 2020 05:38:30am

How to Avail an SME Business Loan

New Delhi, Aug 4 (KNN) A massive generator of employment opportunities, small and medium-sized industries are the driving force behind jumpstarting economic development. NBFCs are becoming the ultimate solution for availing SME business loans. With utmost emphasis on digital media platforms for gauging the borrowers’ loan eligibility, the traditional lending norms for obtaining SME business loans are being uprooted and stashed away by many.

Zero collateral requirements accompanied by hassle-free processes, minimum documentation, and flexible repayment periods help SME business loans play a significant role in giving SMEs all the assistance they require in every stage of their operation.  

What is an SME business loan?
Loans that are provided by NBFCs for catering to a wide range of financial needs of SMEs are called SME business loans. However, refusal of payments through Demand Draft and cheque mediums, sets them apart from banking institutions.

Benefits of an SME business loan
Whether one does not possess the necessary funds to expand business or meet inventory expenses, SME business loans are committed to providing SMEs with monetary assistance required for their successful operation.

With this loan service extending its arms to the service as well as the manufacturing industry, an SME business loan is an efficient financing option for getting all your SME business monetary requirements in shape.

Upon acquiring an SME business loan, a rigid tenure for its repayment is not something that one has to encounter. An elastic 12 to 24 months repayment period marks it to be a convenient financing option for small-business owners. Electronic fund transfer or monthly EMIs on the lenders’ website- an SME business loan can be repaid in any mode one finds to be convenient. With effect from March 1 2020, the EMI payments of SME business loans have been cushioned with a three-month moratorium period to assuage the COVID-19 impact on businesses all across.  

The relaxed regulatory norms to acquire SME business loans are conducive for small-time borrowers as these loans meet urgent business needs, thereby ensuring rapid development. Loans up to three lakh rupees are provided for meeting limitless working and long-term capital requirements.  

What are the eligibility criteria for obtaining an SME business loan?
As NBFCs prioritize on fulfilling the immediate financial needs of small businesses, a handful of eligibility criteria is expected for making the loan availing process a piece of cake for the borrowers. Even though NBFCs make slight changes in their criteria, a few standard criteria remain the same.

~~ Applicants between 23-65 years.
~~ Income Tax Returns of the previous year should exceed 2.5 lakh.
~~ A minimum business turnover of 10 lakh
~~ A business in operation for at least 2-3 years
~~ Not applicable to NGOs and charitable trusts
~~ A business incurring profits for at least 2-3 years
~~ A registered business conforming to ethical nature
~~ A fairly-good CIBIL score
~~ The proprietor needs to be the owner of the premise or a house
~~ Proprietor’s house not to be maintained as the business premise

Once all these details have been provided, SME business loans are disbursed within a day or two.

Does an SME business loan require collateral?
Highly accessible to businesses located in areas where the prevalence of banks is not common, non-banking financing companies negate collateral requirements. This acts like a blessing for small business owners availing SME business loans without collateral demands breathing down their necks. Interest rates charged on these loans are between 11.25% and 17.85%.

How to avail an SME business loan?
Availing an SME business loan is something that does not involve tedious formalities. One can choose the most suitable loan options for any financial crunch that SMEs face. Ranging from working capital requirements to long-term investments, SME business loans have the potential to plug the holes of financial inadequacies SMEs often encounter in areas where the prevalence of banks is a rarity.  

Two simple steps are all that’s needed to acquire an SME business loan.
 1) Meet the lenders’ eligibility criteria: The first thing you need to do before turning towards an NBFC for an SME business loan is to make sure you meet the minimum criteria set by them.

 2) File the necessary documents: Lenders are put at ease with minimum documentation procedures to be followed for obtaining an SME business loan. This makes NBFCs a one-stop option for fulfilling urgent business needs with SME business loans.

~~ Address proof
~~ Residence proof
~~ Annual bank statement
~~ PAN card of business entity and stakeholders
~~ Income Tax Returns of the last 2-3 years

SME business loan documentation is made easier with the provision of uploading their PDFs on the website of the respective lender. The online application procedure gets done within a few minutes.

Make it an effortless task- Things to consider before availing a loan
Whether it is for hiring new employees or meeting inventory expenses, SME business loans can be used to finance any business requirement of your choice. The necessity of sticking to the purpose for which you acquired the SME business loan is not insisted upon. This allows SMEs to flexibly utilise the loan fund for any unprecedented expenses that arise in the volatile business environment. Nevertheless, a clear picture of your loan requirements before applying for an SME business loan gives a greater edge to your loan approval process.

As SME business loans involve a high risk to lenders, the creditworthiness of the company is an essential factor for assessing whether it has a repayment capacity or not. Getting credit scores checked before applying for an SME business loan is insisted upon by many lenders. However, sometimes NBFCs relax the CIBIL score criteria and consider bank transaction details of the borrower as well.

Keeping an online loan account helps you keep track of all the crucial SME business loan details. It also aids in the process of monthly EMI repayments, which can be done on a weekly/fortnightly basis too. The no-penalty EMI policy is a relief for SME business borrowers who are unable to make it on time for the repayment cycle, provided they inform the lender the reason for it in advance. Additional fees are generally not applicable while acquiring SME business loans. Look out for those resorting to fraudulent charges.

So, if you are planning to expand your business or are looking for emergency funds to sustain your business, then look out for an SME business loan at the earliest as the loan disbursal process is quick and hassle-free.

DISCLAIMER: This story has not been edited by KNN India staff. The view and opinion expressed in the article are of Ketan Choudhary.



  1. carri
    carri 21/01/2021 10:18 AM

    Very informative article for someone who is looking for a small business loan. Many banks and fintech companies offer quick SME loans today with minimal documentation. One of my friends got a loan to expand his business from LendingKart. The service offered by such companies is also good.

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