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SME Loan – Uses, Benefits, Interest Rates and Charges to Know

Small and Medium Enterprises, commonly known as SMEs, have been proving to be the backbone of the country, peddling its finances and economy towards growth. Today, the size of this sector is only growing as more and more new and existing small and medium-sized companies are cropping up and registering as qualified SMEs. Such growth in the sector has also led to the rising demand for business funding. Thankfully, the financial market backs up these requirements through dedicated funding options like a SME loan.

These loans and advances are designed to meet the diverse monetary requirements that a small or medium sized business may come across from time to time. Several of their features turn out quite favourable for SMEs, allowing them to meet their funding needs without much hassle while keeping their finances in good health at all times. Let’s check out some pertinent details related to these business loans for a better perspective.

How Useful are Customised Loans for SMEs?

An SME loan is designed to specifically meet the various funding needs a small or medium sized business may encounter, both in small and high value. These advances are specifically designed to meet the sudden financial gaps an SME may come across. From time to time due to its expanding framework of operation and demand fulfilment.

Thankfully, most of these loans come with zero restrictions to end-use. Which makes them suitable for financing any and every type of business funding needed. The fact that their use is restriction-free opens them up for a wide range of expenses in the short as well as the long run. It is typically one of the reasons why a business loan for SMEs has become. A preferred funding option for many small and medium-sized businesses.

Below given are some common purposes that an SME loan can be sought for by businesses. The list is inclusive and can include other business expenditures a business may encounter too.

Working capital financing:

A small or medium business in its phase of expansion often falls short of funding to meet its operating requirements on a day to day basis. Keeping the working capital optimal is, however, essential for healthy operation of the firm. A business loan for SMEs can suitably fulfil the working capital financing needs of a business from time to time. Particularly because the financing value is sufficient and the loans are often readily available for eligible individuals.

Business expansion:

SMEs also often need funding to meet their business expansion needs. For instance, they may be opening offices in new locations, expanding sales to new markets, reaching out to new locations, and the likes. A loan for SME can be just the right funding option under such circumstances.

Long-term asset purchase:

The loan amount can also be utilised for the purchase of long-term assets, such as machinery and equipment.

Asset repair or replacement:

A business may need repair or replacement of its assets such as machinery from time to time. This may involve high costs, which can be conveniently fulfilled with an SME loan.

Operational capacity upgradation:

Upgradation of operational capacity may be needed when expanding, which such a business loan can help with.

New hiring of professionals:

Hiring professionals for skilled work is another costly expenditure for a business, which a business loan for SMEs fulfils suitably.

One may also seek out office and factory renovation with such financing available in high values to better business stature.

Top Benefits of Business Loans for SMEs

  1. Collateral-free financing: An SME loan is often available without collateral, which makes it easily accessible to businesses. Especially new ones that do not hold such assets or are not willing to risk them.
  2. Simple eligibility and document requirements: Borrowers seeking SME funding need to fulfil only a handful of eligibility and document requirements to avail funding.
  3. Quick approval and disbursal: Online application processing has further made loan availability less time-intensive. Bringing quick approvals and disbursals combined with minimal paperwork.
  4. Repayment tenure flexibility: Businesses can choose a tenure of up to 5 years to affordably repay their loans in easy EMIs.
  5. Financing of high value: With the right lender, financing of up to Rs.25 Lakh is available as business loan for SMEs.

Interest Rates and Charges

Many of these loans are backed by subsidy schemes. Which make an SME loan interest rate affordable for most businesses. Alternatively too, businesses can find lenders levying competitive rates on these advances. Other fees and charges levied on these advances are set at nominal rates too, keeping the total cost of the loan in check.

When applying for an SME loan, make sure to compare loan offers from different lenders before deciding. Use financial tools like EMI calculator and eligibility calculator to best determine your borrowing value and tenure. Which should keep your loan affordable and increase the chances of its approval.

You can also look out for other repayment options like part-prepayment or foreclosure to pay back your loan liability. Lenders extending business loan online in India also provide financial tools like EMI calculator that allow one to assess EMIs and choose tenure accordingly.

Choice of lender

Ultimately, your choice of lender determines the overall suitability of your loan for small businesses. Various facilities like loan approval and disbursal duration, online application processes, repayment options, etc, vary from one lender to another.

Also, some lending institutions offer more favourable terms on business loans to borrowers than others. You can determine your lender after undergoing overall assessments of features and facilities they offer.

When finalising your SME loan, take care to check the necessary documents required and arrange them before applying. Also, it is ideal to opt for online application than go for offline one as it is easier and faster, while also eliminating unnecessary steps involved.

The overall flexibility of your repayment is defined by the ease of tenure selection a borrower experiences and avails when receiving business loan approval. The right tenure selection can not only impact your monthly instalments but also result in a check on or inflation in the total repayment liability as tenure is directly related to the total interest accrual. With the best lenders, you can seek a tenure of up to 5 years for business loan repayment.

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