Table of Contents
- Introduction
- SME loan: What are its features?
- Why do you need a business loan?
- Limited capital
- Limited revenue
- Employee Retention
- Expansion
- Fear of losing control
- In a nutshell
Introduction
Recently, the market witnessed the birth of many start-ups and small business entrepreneurs. Owning a business is exciting, but any business requires funding to get started and survive. There are multiple expenses associated with the operation of a business, including inventory, working capital, human resources, and daily expenses. An entrepreneur can't rely solely on savings. Additionally, SMEs in rural or backward areas won't have such capital.
Hence, an optimal solution in such situations is to get an SME loan. SME loans, or small and medium enterprise loans, are designed to assist small- and medium-sized businesses with their financial needs, to run and grow their operations. This article discusses SME problems and how an SME loan can be the perfect solution.
SME loan: What are its features?
Under the MSMED Act, 2006, SME loans can be granted to certain types of enterprises that fall under the definition of small and medium enterprises based on annual turnover and investment in machinery and equipment.
Following are the threshold limits:
| Particulars | For Small enterprise | For Medium Enterprise |
| Investment threshold | Between Rs 1 crore and Rs 10 crore | Between Rs 10 crore and Rs 50 crore |
| Turnover threshold | Between Rs 5 crore and Rs 50 crore | Between Rs 50 crore and Rs 250 crore |
Additionally, SMEs can obtain financing by using easy online business loan facilities offered by several lenders.
The following are the features of these loans:
- Small business loans are chiefly economical, with affordable interest rates. In addition, entrepreneurs do not have to pay a prepayment penalty, if they decide to pay off the loan early.
- Another feature of these loans is that they are usually unsecured. In other words, the small business owners do not need to provide any collateral or security for the loan.
- One of the eligibility criteria of business loan requirements is documentation. Due to the absence of collateral requirements, documentation is often minimal. It varies from one lender to another. Many banks require GST, Income tax returns, and financial statements for a couple of years.
Why do you need a business loan?
While running a small business, every SME faces some challenges. Listed below are some issues and how a business loan can help solve them:
1. Limited capital
A start-up or small business has many things to consider, from customer demand to marketing to future financing, and more. A quick cash flow is important to meet these requirements. Insufficient working capital at the right time can affect an organization's ability to continue operations. An SME loan could help an organization deal with this issue. As there is minimal documentation, the loan approval process is quick. Furthermore, taking out a small business loan can build up their credit for future financing needs, as long as the repayments are made on time. SMEs can also calculate the repayment schedule suitable to them, using a business loan calculator, and then apply for a suitable SME loan.
2. Limited revenue
Liquidity and a positive cash flow are essential for a business to run smoothly. There may be issues with funds being blocked due to unused inventory or pending payments. Nevertheless, businesses have fixed costs such as rent, utilities, and employee salaries and thus need funds. In such situations, SMEs can apply for working capital business loans. When their profits are low or inconsistent, they will meet their short-term costs this way. Further, they will not need to draw from their emergency funds.
3. Employee Retention
It's difficult for a business that's new or hasn't established itself in the industry to attract the right kind of talent and levels of experience. The business needs to invest in marketing and advertising to obtain better-experienced skill. Additionally, it is critical, regardless of the size of the business, to ensure employee satisfaction and that they feel valued and appreciated. They must invest in employee benefits like paid leaves and insurance policies. Small business loans allow borrowers to use the money as they see fit. Furthermore, they get capped interest rates as well as the flexibility of repayment periods.
4. Expansion
Every business aspires to expand its geographic reach, attract new customers, and boost revenues. The manufacturing businesses must also invest in updated technology and equipment to stay in trend, and avoid high maintenance costs and a poor production cycle. Such investments not cheap. SMEs can obtain equipment financing business loans to purchase or upgrade their existing machinery. In addition to staying competitive, it saves enterprises money on taxes. The interest paid on such loans is deductible.
5. Fear of losing control
The venture capitalists or outside investors usually request certain equity in return when raising funds. SME loans, however, do not require letting go of equity ownership. Most SME loans do not require collaterals. Therefore, when a small business needs to pay off any debts, it should calculate the required amount using an online business loan calculator, and choose an SME loan accordingly.
In a nutshell
Having read the above article, you will better understand how an SME loan can help solve many of your business's problems. Small businesses must use their limited resources effectively and seek assistance in a financial crisis. Small business owners verify their eligibility criteria as well as apply for a business loan online. The application, approval, and fund disbursal in an online business loan is quick and hassle-free.
For competitive reasons, many lenders are even offering low-interest rates, along with other benefits. If you have any doubts, you should always consult a financial advisor.
