Understanding The Different Types of SME Loans in India

SME loans in India

At some point in your business, you will require funds to cater to your business requirements. Business needs usually vary between buying new stocks or purchasing assets, such as land, factory, shop, or getting new machinery, or basic operating expenses, such as overhead and salaries. In such as, relying on microfinancing options may sound reasonable.  

But, which SME loans in India in the best way to fund your business needs. There are several options available you can avail of based on your business needs and preferences. Here are the different  types of SME loans in India:  

  • MSME loan in 59 minutes

 It is a government-launched SME scheme that enables borrowers to get approval for a loan within 59 minutes. Under this scheme, you can secure up to Rs. 1 crore in less than an hour. Compared to other loan options, it has a lower interest rate, which can start from as low as 8.50%. It is provided by both banks and non-banking financial companies in India.  

When you apply for an MSME loan in 59 minutes, the lender will check factors, such as income/revenue, repayment capacity, and existing financial obligations to determine your eligibility. It is one of the quickest to access funds to meet your business needs, as there is minimum documentation involved.  

  • Pradhan Mantri MUDRA Yojana  

It is a recent SME loan in India that enables borrowers to get access up to Rs. 10, 00, 000/- as a loan. However, your loan amount depends on the category your small business falls into, such as Shishu, Kishore, and Tarun. Each category signifies a stage of development. For Shishu, you can get up to rs. 50, 000/- as a loan at an interest rate that ranges between 1% to 12% per annum.  

A Kishore loan can get you up to Rs. 500, 000/- at an interest rate of 8.60% per annum, and as with Tarun, the loan amount can go up to Rs. 10, 00, 000/- per annum at an interest rate of 11.15%. Pradhan Mantri MUDRA Yojana is a type of micro-financing option in India that caters to your specific working capital needs. It enables you to also get a loan for tractors, two-wheelers, and other transport vehicles for your business.  

  • Term Loan  

A term loan is one of the common types of SME loans in India. It can be secured and unsecured in nature. Some lenders offer up to Rs. 30, 00, 000/-. However, the loan amount depends on the business’s credit history. The repayment tenure ranges between 1 and 5 years for an unsecured term loan. If you are opting for a secured loan, it ranges between 15 to 20 years. A term loan is generally taken for specific purposes, such as capital expenditure.  

  • Working capital loan  

It is another type of SME loan in India that aims to overcome the shortage of cash to ensure a smooth operation of the business. With this type of loan, you can get access to cash to meet your business’s day-to-day operational needs. It enables you to deal with a shortfall of cash during offseasons. You can also get this type of loan to meet demand during peak season. It best suits borrowers, such as manufacturers, service providers, wholesalers, and retailers. 

  • Loan against property for SME  

It is another micro-financing option to meet your business requirements. As the name suggests, it is a type of secured loan that requires you to pledge your property as collateral.  The loan amount generally exceeds Rs. 50, 00, 000/-. You can apply for a loan against a residential or commercial property. You can get up to 70% of your property’s market value as a loan. You will have to ensure that the title of your property is clean and free from encumbrance. Your mortgaged property should be free of litigation. The repayment generally ranges between 15 to 20 years, depending on your lender. 

  • Equipment Financing 

It is a type of SME loan in India that best serves manufacturing business requirements. It is one of the most preferred types of SME loans in India. It enables you to buy costly equipment for the smooth operation of your business.  It is secured in nature, which means that you will have to pledge the machinery as collateral. You can get a loan amount based on your needs. However, you will need to convince your lender that you can make repayments within the stipulated EMIs. The interest rate is generally lower than the term loans.  

In short  

There are numerous options available to secure a loan for your business. However, before applying for an SME loan in India, make sure to access your business requirements and your repayment capacity to ensure timely repayments and avoid further financial burden on your shoulders.