Download App app-link

Option for SME funding

options for sme funding A

The SME sector plays a crucial role in the social-economic transformation of India’s financial state. The sector has helped in the eradication of unemployment, a decrease in poverty and removes the rural-urban migration in India. It contributes to almost 8% of GDP, with 45% of the output are produced here, 40% exports, where 6000 commodities are manufactured and 60 million people have access to jobs due to this sector.

The SME’s are mainly classified into two sectors:

  1. Manufacturing
  2. Services

Under the SMED act in India on the basis of the seed money and the plant and machinery turns out as

Enterprise       Manufacturing                   Services

Micro               Up to 25 lakhs                          Up to 10 lakhs

Small                25 lakhs – 5 crore           10 lakhs – 2 crore

Medium           5 crore – 10 crores 2 crore – 5 crore

The rate of interest is directly proportional to the tenure of the loan.

SME Business Loans

The majority of the SME go for Business Loan from the options available. The term loans are of three kind

  1. Short term loans
  2. Medium-term loans
  3. Long term loans

The benefit of SME Loans

  • It is an inexpensive source business loan from the companies point of view.
  • The process is short and quick.
  • The loans can be easily repaid if the business has an appropriate working model.
  • The business can flourish quickly

Modes of SME business loans

      1. Short Term Funding:

Short term funding or drafting applies for cases of overdrawing or pulling out more funds than what is deposited in your current account.

      2. Bank guarantees:

This is another means to issue short term loan, where the bank pays on behalf of the buyer or the seller to the third party. Priority sector loans play a foremost part in the short term funding as under RBI banks are required to keep a certain amount. The various benefits include many options available under short term funding, flexible collateral options and quick approval and easy documentation.

      3. Bill Discounting:

In this process, you can get instant cash on the basis of your credit sales, where the bank takes a discount fee and releases cash before the credit time ends. You would have to provide the billing account of the trade that occurred between you and the third party. So here, instead of waiting for the bill to be cleared, you can withdraw cash on the same day. The benefits of the process are easy withdrawals, less trouble to authenticate and collateral-free transactions.

      4. Letter of Credit:

A letter of credit is another option where the bank assures the seller the specified amount deposited by the buyer. So in case of the buyer being unable to pay, the bank will settle his dues. Mostly used in the international transactions of a larger scale and in the land development process. The whole deal is based on the creditworthiness of the bank. The benefits are that there is less risk of failure, less risk of the spoil of goodwill and the business gets funding without hassles.

     5. Loan against Property:

Your property or house is kept as collateral. The amount for a business loan is based on the market value of your property offered as collateral and the loan given is 50-60% of collateral value. The benefits are the lower rate of interests, easy documentation, longer tenure of loan and have quick approval and processing.

     6. Unsecured Business Loan:

An unsecured loan is given without any collateral, it can be utilized for business expansion and financing of projects. The borrower would need to have high credit value in the market to get such loans. These loans are short term loans ranging between Rs. 15 lakhs- 1 crore which re-paid in the form of EMI’s. It includes the priority sector, mainly agriculture. The main benefits are, quick turnaround time and easy application and documentation

     7. Angel Investors:

These are investors who have surplus cash and are interested in funding SMEs.  They can be in the form of individuals or groups of networks. They can either ask for a share in the company or about 30% of returns value. The benefits of angel investors are that they are ready to take more risks in order to get returns and it requires less documentation.

     8. Venture Capitalists:

Venture capitalists invest in businesses with the potential for high returns. They invest in a portfolio that is usually high risk but with a potential for exponential growth. The benefits of venture capitalist are that the business strategy gets more refined which brings fewer managerial problems. They don’t interfere with the running of the business too much, there are flexibility and sustainability because of the huge amount of investments.

     9. Equity Finance:

In Equity finance, the shares or stocks are sold to investors to raise capital. The investor in return gets ownership interests in the company. The benefits of the equity financing are that, huge funds can be generated, it is suitable for the long term investments, thus business has less risk.

    10. Peer-to-Peer Lending:

One of the major sources is the supply of business funding is through peer to peer lending, where online platforms come into the picture. through these platforms, the person in need of finance is matched to the person who wants to invest. The benefits are quick online loan availability, lower interest rates, and authentic investors.

Additional Reading – Follow These When Applying For a Small Business Loan

Check your maximum Loan Eligibility 


Home Loan   Loan Against Property    balance-transfer    Business Loan    Personal LoanMudrahome App





Recent Posts