Small Business Loans

Updated: 08-03-2024 07:31:52 AM

Small business loan help Micro, Small and Medium Enterprises (MSMEs) overcome urgent or recurring financial requirements without any difficulty. These loans are of various types, such as working capital loan, term loans, loans for the purchase of plant & machinery, deaCredit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)ler finance, credit card receivables, loans for professionals and self-employed individuals, and so on. Almost every private and public sector banks and Non-Banking Financial Companies (NBFCs) offer small scale business loans at competitive interest rates.

In addition, the government has come up with various small business loan and incentive schemes for the MSME sector, such as Mudra Loan, Prime Minister’s Employment Generation Programme (PMEGP), subsidy scheme for term loans, Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), SIDBI Make in India Loan for Small Enterprises (SMILE), and so on.

Eligibility Criteria for Small Business Loans

Most of the lenders have prescribed their own set of eligibility guidelines, though there are some common criteria as given below:

• Age Criteria: Minimum 18 years and Maximum 65 years
• Business Tenure: Minimum 2 year (In profits)
• Business Turnover: Depends on lender
• Credit Score: Above 650 with decent repayment history
• Good Financial history with no defaults
• Indian citizen with no criminal records
• Applicant should have self-owned house or shop

Also Read: Most Successful Small Scale Business Ideas in India

Types of Small Business Loans

Short-term Loans: Term loan (Short-term loans) can be availed for lesser amount and shorter repayment tenure with no collateral to be submitted.
Working Capital Loans: Loans to meet the day-to-day operational needs of business and to manage business cash flow. The loan amount starts from Rs. 1 lakh.
Mudra Loans: Working capital loans are offered to SMEs and MSMEs to expand their existing business, to buy equipment & machinery or to start a new business. Minimum loan amount has no limit, whereas maximum loan amount goes up to Rs. 10 lakh.
Startup Loans: Startup loans are offered to launch a new business or enterprise with limited capital investment, starting from Rs. 1 lakh to Rs. 10 lakh.
Business Loans for Women: Discounted and competitive interest rates are offered for women entrepreneurs along with loan amounts that are affordable to repay. The loan amount offered is also nominal to start a micro or small business unit.

 Small Business Loans from Popular banks

Various banks and financial institutions in India offer small business loans for their customers. Let us take a look at the loans being offered by some of the leading players in the market.

1. State Bank of India (SBI)

India’s largest bank has a strong presence in the small business sector and offers a range of products for small business owners. Its financing for small businesses include:

• Simplified Small Business Loan: Under SBI’s small business loan, drop line overdraft facility can be availed by the borrowers. Maximum loan amount offered under Simplified Small business loan is Rs. 25 lakh. Interest rate is linked with the MCLR wherein minimum collateral is 40%. Small business loan can be availed by businesses engaged in manufacturing, services activities along with self-employed and professional individuals, wholesale/retail trade
• SME Credit Card: The bank offers this small business loan to small industrial units, small retail traders, professionals and self-employed and small business enterprises and transport operators, if they have a satisfactory track record with the bank for the last 2 years. The bank gives a credit line of up to Rs. 10 lakh and the money can be used for purchase of shops or equipment. SBI offers a repayment period of up to 5 years
• SBI Pradhan Mantri Mudra Yojana (PMMY): The small business loan is meant for people who need a loan of up to Rs. 10 lakh. The loans come in three categories based on the amount needed: Shishu with loans of up to Rs. 50,000; Kishor with loans from Rs. 50,000 to Rs. 5 lakh; and Tarun with an amount from Rs. 5 lakh to Rs. 10 lakh. This small business loan is provided under the aegis of Micro Units Development & Refinance Agency (MUDRA), an initiative of the government to drive credit into enterprises at the grass-root level
• SME Smart Score: This loan can be availed to fulfil the working capital needs and for acquisition of fixed assets. The minimum age to apply for this loan is 18 years wherein the maximum goes up to 65 years. The maximum loan amount for manufacturing units can go up to Rs. 50 lakh and for trading and servicing units the maximum amount offered is Rs. 25 lakh. The interest rate shall vary as per customer’s profile and processing fee is as per the bank’s latest instructions

2. Punjab National Bank (PNB)

India’s second largest bank also has a strong presence in the SME sector. It extends various debt and savings solutions for small businesses. Some of these loans include:

• PNB Seva: This SME loan from PNB is a scheme for financing MSME service units. The small business loan can be taken to fund working capital requirements (through cash credit or overdraft facility) or taken as a term loan for non-recurring expenditures. The working capital loans have to be renewed on a yearly basis. The bank offers different rates of margins based on the type of loan (cash credit / term loan), amount and end-use. The loan is provided for a period of up to 5-7 years, though PNB offers the option to increase this tenure to 10 years under certain circumstances
• SME Sahayog Scheme: This small business loan is given to meet any unforeseen expenditure. The SME applicant must have credit limits above Rs. 20 lakh and their accounts must have been classified as standard assets for the last three consecutive fiscals. The bank gives the loan as a cash credit with a special credit limit of 20% of the aggregate working capital limits, provided it is not more than Rs. 25 lakh. The business can use the credit facility up to 12 times a year, with each withdrawal required to be repaid within a maximum time of two months
• PNB Professional Scheme: This loan offers a credit facility to professionals to set up or expand their practice. The bank gives the small business loan in the form of cash credit, overdraft or term loan. The loan starts from a minimum of Rs. 1 lakh with the maximum amount being based on the applicant’s need for term loans and cash credit. The overdraft facility has a maximum limit of Rs. 25 lakh. The overdraft and cash credit facility is given for a period of 1 year, while the term loan has a repayment period of 7 years in monthly or quarterly instalments

 3. Bank of Baroda (BOB)

Bank of Baroda offers a range of SME loans for general as well as specialised end-use or sectors. For instance, the bank offers credit products for artisans, for educational institutions, etc. Though most of these loans are secured loans, the bank also offers small business loans without any collateral:

• Baroda Laghu Udhyami Credit Card: The card offers a line of credit to small business units, retail traders, artisans, village industries, small and tiny units as well as self-employed people, whether professionals or otherwise. The maximum loan amount is Rs. 10 lakh for a period of up to 3 years. The bank offers up to 75% of the funding requirement as a loan
• Baroda MSME Capex Card and Loan: The small business loan is given from Rs. 25 lakh to Rs. 5 crore for the card and up to Rs. 2 crore for the loan. The bank offers a repayment period of 3-7 years. The business unit must have had at least 2 years of operational history and at least one year of satisfactory dealings with the bank
• SME Short Term Loan: This small business loan is given by the bank to borrowers for any temporary shortfall in liquidity for meeting specific business needs. The organisation must have had a satisfactory credit rating with the bank for the last 3 years. The loan amount can range from Rs. 10 lakh to Rs. 2.5 crore, and must be repaid within 12 months 

4. ICICI Bank

ICICI Bank is one of the largest private sector banks in the country and offers a variety of loans for small businesses. Some of its products include working capital finance, term loans, loans for start-ups, collateral free loans, loans without financials, and so on. Here is a look at some of these loans:

• Working Capital Finance: The bank offers overdraft facilities, bank guarantees and export credit, among others for small businesses to meet their working capital requirements. ICICI Bank allows the borrower to provide various types of collateral including residential property and liquid assets such as securities. The loan can be taken by sole proprietorship firms, companies, and partnership firms
• Term Loan: The bank offers this small business loan to buy commercial assets, set up new units or modernise existing operations. The bank offers a collateral free loan of up to Rs. 2 crore under the CGTMSE scheme. The term loans have tenure of up to 7 years with flexible repayment options. The amount of loan is based on future cash flow estimates
• Loan for New Entities: This small business loan is meant for first time borrowers or start-ups that are engaged in manufacturing, retail, wholesale, import & export trading and service industries. Borrowers can provide commercial and even residential property or liquid securities as assets
• Collateral Free Loan: ICICI Bank offers collateral free loans under CGTMSE scheme of amount up to Rs. 2 crore. Collateral free loans are offered to MSE excluding retail trader and public limited companies, sole proprietorship firms, private limited companies and partnership firms
• Loan without Financials: The bank offers this small business loan to its customers based on their history with the bank. The borrowers do not have to provide any audited financials to get the loan but have to provide collateral in the form of residential, commercial or industrial property, or liquid securities. The loan can be obtained for up to Rs. 1 crore and the repayment period is up to 3 years

In addition to these banks, various other regional rural banks and NBFCs provide startup funding for small businesses with the help of new small business loans. The financial institutions also provide the necessary support to various SMEs and MSMEs that avail the schemes provided by the government to set up, expand and grow their businesses.