Guide to SME Business Loans in India

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you about it that how you can opt for a loan and what are the criteria and other details in a meticulous way. Here, is the guide to SME business loans and the things to be kept in mind before applying. 7 GUIDING STEPS TO SME BUSINESS LOANS IN INDIA Purpose: The first step towards any business loan is the purpose of the business loan. You must know the purpose of your loan and the requirement that is necessary to be fulfilled at that particular stage in the business. The level of importance decides the need for a loan for a particular business. The needs can be of many types such as expansion of the business especially to a new location or a new city, launch of a new product in the market to satisfy the gap, warehousing, running a campaign for the promotion of a new product, marketing of the company, hiring new employees in the company and many other purposes come into the picture when you have insufficient funds to fulfill them. These purposes or needs can be fulfilled when you take a business loan for your SME. The purposes may differ based on the sector you are into i.e. manufacturing or service. Eligibility: You must check the eligibility for the loan before taking the loan from a financial institution as they may reject your proposal if you are not appropriate. The eligibility criteria for different institutions are different when you go for a business loan. But, these are some basic things that you should consider in mind when you go for a business loan. You must, first of all, check your CIBIL score before applying for a business loan. A CIBIL score is the credit score which is a mirror reflection of your credit ability in the market. Also, the eligibility differs from the nature of the business you are into i.e. manufacturing and services. If you are an existing business then you should update your financial records, calculate the net worth of your assets and maintain your bank statements if you are applying for a business loan. Other documents may also be asked for if the
financial institution needs them for further verification. They might also ask for the business model and your previous documents if you already have a business and your profit and loss account and balance sheet. Low Interest Rates: You must also take into consideration while taking the business loan for your SME the interest rate as this may affect the growth of your business and may also turn out to be negative for your business. If your business has not got many turnovers then you must opt for a loan which has got lower interest rate. Also, the loan a businessman can opt for if the turnover is low is a loan against property where the property is kept as collateral and the interest rate is low as 10%. This can also be changed by lending a bank overdraft or a cash credit where the interest rate is at 11-13%. On the other hand when we take into consideration the personal loan the interest rates go as high as up to 24% if you have a low credit score in the market. So, you must check the best interest rates before going to the business loans and opt for the one where the interest rates are low and there is less risk. Lastly, you should take into account the assets which are being used as collateral when you are taking the business loan for your business purposes. Low Cash Outflow: Yes! The cash outflow in the business should be kept low initially when the business loan is taken for the expansion or some other purpose. This is a very important aspect to be considered. If your cash outflow is higher than your cash inflow then you must amend it immediately. The only cash flow you can afford at the moment is the payment of the loan and the interest of the loan. Cash outflows include the payment of the salaries, bills, rents, maintenance and dividend and other outflows. For overcoming this problem the best option that can be adapted is by borrowing the loan from your friends and family at low-
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Guide to SME Business Loans in India

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