Small Scale Industries Business Loans
A country as vast and as diverse as India is not run just by its heavy industries, service sectors or commercial hubs. At the heart of keeping this economic apparatus running is the small and medium-sized enterprises or the SME sector. They are the cogs in the wheels who keep the machine running. They supply essential goods and services not just to the big industry but also directly to retail customers while providing employment to a substantial number of people. The Indian government defines SMEs in various categories as having investment in equipment from 10lakh to 5crore rupees. And one challenge faced by the sector is loan for small-scale industries for operations and expansion.
As an SME the main problem you will have to face is cash flows and finance for expansion. There are many SMEs engaged in fields as diverse as engineering to textiles and electronics to ad services who face these problems every day. So if you are a merchant for an e-commerce portal or a supplier of parts to an auto manufacturer, keeping funds in business as well as expanding is a problem. Solving it through an external source of funds is the key to survival and success.
Business loans for SMEs or small business loans is one of the options you would explore to meet these goals. Two features define a business loan for SME in that they are unsecured so the business does not need to provide security or collateral- perfect for service based businesses like small ad agencies. The second feature is that this loan for small business is provided in the name of the business and not the individual or people behind it. It has to be expressly used for a business purpose which could be anything from funding working capital or opening a new branch. Most loans though are short-term in nature and you should be wary about investing them in the purchase of extensive equipment or build a plant with long gestation periods.
All major private banks and SMEs including HDFC, ICICI, Axis, Kotak, Bajaj Finserv, Tata Capital and Fullerton provide business loan to SMEs. They have their individual eligibility criteria including minimum requirements for vintage, revenues and profits, apart from others, before approving the loan amount. Most banks ask for a vintage of 3 years, revenues of 50-75lakh per year and adequate profits to cover the EMI (depending on loan amount) before approving a small business loan. Some NBFCs have a relaxed criteria on the revenues required with some looking at cases of even 10-20lakh a year. In all cases you have to provide proof of these criteria through ITR, bank and balance sheet statements etc before you get an approval. The rate of interest is charged as per the viability and risk involved in lending.
The other avenue available to SMEs is to approach private lenders or private financers available in every city for a business loan. These private lenders provide short-term business loans to SMEs with their own set of eligibility criteria which might or might not be relaxed as compared to banks. Private loan providers and private lending is a popular route due to the fast decision making and access to quick loans.