With the globalisation of Indian Economy, the SMEs in India are seeing a growth in their business trajectory. Thus, SME loans without collateral have become a popular item of attraction. It is a way that SMEs can raise finance for growth. SME Loan or Small Enterprise Loans are business loans that are catered only for small and medium sized companies. They are exclusively made to meet the unique requirements of small and medium sized companies. One of the main areas where SME Loans prove to be of great use is that they offer for working capital financing which is important for small businesses, and helps to ensure that they have adequate credit available at all times, irrespective of the season. The businesses that are eligible for SME Loans are firms with sole proprietorship, public limited companies, private limited companies, partnership firms, and manufacturing and trading serving units.
The eligibility criteria for MSME Loans are a list containing the names of current shareholders, a list containing the names of the company’s partners or directors, certified copy of Memorandum, the financial statement of last three years in audited form of both the company and its associates, a three year assessment of document of wealth or IT tax, a copy of the sales return of the last three years, copies of voter ID, ration card, and passport of the directors of the company, photographs of the directors and promoters of the company, SSI registration certificate, and the project report in a detailed form.
One of the major advantages of taking SME loan to increase finance for growth is that in this case the interest rates are different than other business loans. The interest rates specifically made for the small and medium business category. The interest for SME loans India starts at 12% per annum in most lending institutions. The charges applicable on SME loans are processing fee (1% of total amount of loan with taxes), renewal fee (0.50% of total amount of loan with taxes), and commitment charges (if the company utilises more than 40% of the loan in an average then commitment charges are not applicable. However, if the company utilises less than 40 % of the loan amount in an average then they are charged 0.50% per annum on the total difference of loan utilised and what would be 40 % of total amount utilised), stamp duty charges, prepayment charges ( 2% if the loan is payed after six months after the sanctioning of the loan and 4% if the loan is payed before six months after the sanctioning of the loan), penal interest (2% added on the existing rate of interest), ROC filling charges (₹3000), cheque swap charges (₹500), repayment schedule charges (₹200), and rebooking charges (₹1000).
The borrower of an SME loanshould be careful of a number of details while filling out the application for one. There are two sections of details that a borrower has to fill in. these sections are, general details, and financial details. The general details that the borrower must fill out for SME loan in India are name of the company, the company’s registered address, the company’s operating address, the date when the company was incorporated, the contact person of the company’s name and basic details, phone contacts of the company, email address of the company, industry code of the company, the nature of business that the company performs, PAN number of the company, and the Service Tax or Sales Tax number of the company. The financial details that the borrower must provide are credit facility and bank account details, basic details of the group entities and associates, net sales of the company, total income of the company, operating profit and net profit of the company, tangible net worth of the company, and security details of the company.