SME - Definition and Meaning:
The full form of SME is Small and Medium Enterprises. As per Section 7 of the Micro, Small and Medium Enterprises Development Act 2006, SMEs are classified as per the amount of investment in the business. The table below may help explain the meaning of an SME more explicitly:
Rs. 1 crore to Rs. 10 crores
Rs. 5 crores to Rs. 50 crores
Rs. 1 crore to Rs. 20 crores
Rs. 50 crores to Rs. 100 crores
Impact of SMEs in India:
In the Indian economy, SMEs hold a dominant position. An overview of their presence in the entire business ecosystem can be described by means of the statistics as under:
- SME Contribution to GDP – more than 24 percent in the services sector and more than 6 percent in the manufacturing sector.
- SME Presence in Exports – SMEs comprise over 45 percent across all sectors of exports.
- Provide Employment – more than 120 million people in India work in the SME sector.
More than 63 million SMEs are operational in India, spread over different geographical locations and various sectors. Hence, the impact of SMEs on the Indian economic map is quite evident.
What is an SME Loan?
During the course of running the business, you may find the need for some additional funds. Many financial institutions, both in the banking and non-banking financial sectors, offer tailor-made loans for SMEs. The salient features of SME loans are easy criteria to be eligible for the loan. Also, the documentation is simple and the loan disbursement process is fast.
Some of the advantages of a business loan, or SME loans are as under:
- You can borrow a significant amount of money for major business projects.
- You have complete control of the money you borrow.
- You can easily access the funds.
- The interest rate is usually low.
- You will enjoy a tax deduction.
- You won't have to repay the loan if your company fails.
SME loans come in two forms – secured business loans or unsecured business loans. In secured business loans, institutions advance money to the entrepreneur by pledging the personal assets as collateral security. Alternately, the entrepreneur stands in as a personal guarantor. In case you are unable to repay the loan as per the terms, the bank will take over the pledged assets to recover the dues.
In the case of unsecured business loans, no collateral needs to be pledged. However, your credit score plays a crucial role in this form of SME loans. The rates of interest are generally higher and tenures of loans are shorter than secured business loans.
SME Loans, which are also called small business loans, help the entrepreneur on two primary aspects of his business, they are:
- Help in meeting working capital requirements. They are called working capital loans.
- Provide necessary funds at the time of business expansion.
What are Working Capital Loans?
SME loans specifically meant to provide funds to meet expenses required to run daily operations are called Working Capital Loans. Some of the applications of Working Capital Loans may be covering for employees’ salaries. Also, these loans may provide relief for paying immediate debts. There are some businesses that have seasonal requirements. Additional funds in the form of Working Capital Loans provide the necessary elbow space to the entrepreneur in this regard.
SME Loans for Business Expansion:
During the lifecycle of a business, a stage comes where you feel that time is ripe now for further scaling up your operations. A plan for business expansion starts featuring in your scheme of things.
The growth engines may come in the form of acquisition of a new business, diversification of products and services, or geographical expansion. As you start striving for growth and look for avenues to earn extra profit, the requirement of funds may become necessary.
Expanding business indeed entails investment in additional resources. You may also need to make fresh investments to charter your growth path. At this point, choosing a source of SME loan as a source of capital is very crucial. You need to be on the lookout for sources of SME loans where a large amount of loans may be available at competitive rates, and the eligibility criteria are easier to meet.
To meet your aspirations to own an SME which has stable operations and is on the path of profitable growth, Shriram Finance Collateral Based Business Loan comes in as a handy option.
Shriram Finance is a non-banking financial company that has been operational for over 45 years. They have tailor-made options for providing funds to SMEs through their network of 947 branches all over the country.
Some of the salient features of Shriram Finance business loans are their vast range of loan sanctioning basket from Rs. 1 lac to Rs.1 cr. The loan approval process that they have is simple. You may either apply online or visit any of their branches. If the eligibility criteria are met, loans get disbursed very fast. The loan tenure offers flexibility from 12 months to 60 months and the rates of interest are very competitive.
Shriram Finance SME loans are available for both existing and new customers. Therefore, even if you have never approached them for a loan in the past, their doors are open for you. They also have unique loan schemes catering to that category of customers who may not be able to obtain loans from any banks or financial institutions.
The repayment of Shriram Finance SME loans may be either done through equated monthly installments or through ECS, where the installment amount gets debited from your chosen bank account. The company site provides an easy-to-use loan calculator for you to arrive at the loan amount, which is easy to service.
To conclude, it may be said that the SME segment being the veritable backbone of the country’s economy, needs only survive. They need to grow profitably. The prime growth engine for the same, providing that extra bit of adrenaline, is by means of SME loans. It is also the entrepreneur’s prime duty to choose the financier carefully and serve the loan. The money you repay gets plowed back into the banking ecosystem, which helps millions of others like you.