Small and medium enterprises consist of companies that have a maximum of 250 employees. These businesses account for India’s 40% export and 45% industrial output, contributing significantly to India’s economic growth, and are owned by marginalized people under the minimum income range.
Microfinance in India has the primary purpose of uplifting the living standard of the marginalized by providing credit facilities like SME finance. It consists of banks and non-banking financial companies that offer loans to individuals who want to start their own business and provide for their families. Microfinance in India ensures access to credit and other financial resources to ensure an enhanced quality of life.
There are small and medium businesses that are struggling to meet the daily financial needs. These small establishments have access to collateral-free loans through SME finance companies. The loan amount is offered at a lower fixed interest rate, which allows SMEs to manage their finances without the burden of not making on-time payments.
Everything to know about SME Finance
SME finance is not just about banks disbursing cash, it is more about offering all kinds of financial resources to get a small business off the ground, manage their day-to-day operations, manage their inventory, and expand operations by exploring new business territories.
Here is everything you should know about SME finance
SME finance is easily accessible
With the advent of the internet, accessing small business loans has become easy. You can easily access loans without having to furnish a lot of documents. The best part is that most banks and non-banking financial companies offer collateral-free loans. The application process has also been simplified. Borrowers have simple and easy access to credit.
Flexible repayment tenure
There is no doubt that not all small businesses make a profit daily to afford on-time repayments. Lending companies are coming up with flexible repayment options to help businesses repay their EMI without putting any burden on their finances.
However, the principal loan amount and the loan tenure are determined based on the financial condition of the business.
The interest rates are always low
There are also government schemes that promote SME finance to financially uplift small businesses. These government-backed SME finance schemes have lower interest rates as compared to other loans. The advantage of having a lower interest rate is it can improve the quality of life for lower-middle-class people.
SME finance is offered based on the borrower’s credentials, loan tenure, business model, and the company’s financial balance sheet. Upon loan approval, the lender charges a nominal processing fee.
Small business loans are usually collateral-free
SME finance’s popularity among people stems from the fact that the loans are collateral-free. It means that borrowers do not have to pledge anything as collateral or security. It is an ideal source of funding for small and medium enterprises. However, to acquire a loan, you must have co-applicants. It ensures microfinance banks get payments if the borrower defaults.
SME finance is ideal for short-term business needs
SME finance has a primary purpose of helping businesses with their short-term requirements like inventory management and increasing production. It also enables the borrowers to repay the loan amount on time as it doesn’t involve long-term commitment.
Furthermore, when the loans are provided for a short period, businesses can also manage their flow of cash and allocate their resources efficiently.
The easy and hassle-free documentation process
Another benefit of applying for SME finance is that you do not have to experience lengthy application and documentation processes. Most lenders offer SME finance through the internet, which means that the process is hassle-free and requires minimum paperwork.
SME finance protects against default of payment
Small business loans are offered to people in groups, especially to women. Each member in the group bears the responsibility to ensure repayment of the loan amount. For instance, if one member defaults in payment, other members can come forward and make repayments in full with the interest applicable.
SME finance as per business needs
There are different small business loans available as every business has different requirements. SME loans are offered to cater to the specific needs of small and medium enterprises. For instance, a Kirana shop can only afford to pay the daily installment, a business with regular banking transactions is best suited for EMIs.
Small businesses have access to SME loans and other financial resources through microfinance in India. Small business loans are a great way to manage and expand business operations.