A small business loan helps micro, small and medium enterprises tide over urgent or recurring financial requirements without any difficulty. These loans are of various types such as working capital loan, term loans, products for purchase of machinery, dealer finance, credit card receivables, loans for professionals and self-employed individuals, and so on. All banks and non-banking financial institutions in India offer small business loans.
In addition, the government has come up with various loan and incentive schemes for the sector such as Mudra Loan, Prime Minister’s Employment Generation Programme (PMEGP), subsidy scheme for term loans, SIDBI Make in India Loan for Small Enterprises (SMILE), and so on.
Eligibility Criteria for a Small Business Loans
A small business loan can be taken by any business provided they meet the eligibility criteria laid down by the bank or financial institution. Most of these lenders have prescribed their own set of eligibility guidelines, though there are some common criteria as given below:
- Business Viability: The borrower must have been carrying on the business for a few years to be eligible for the loan. Start-ups that need a loan have to show their business plans and prove the business’ feasibility to be able to get the small business loan.
- Owner Details: The owner of the business or company/partner of the firm will have to provide their ID and address proofs as well as relationship with the business. The owner’s bank statements will also be needed if the business does not have a separate corporate identity.
- Financial Records: The lender will need financial records of the business such as balance sheets and profit and loss accounts for the last 1-3 years, bank statements, IT returns, and so on.
- Management Details: If the business is undertaken through a company or partnership, then details of directors or partners will be required along with authorisation from the other directors/partners for one of them to act on their behalf to take the loan.
- Credit History: Banks and financial institutions also look at the credit history of the borrower if he/she is borrowing in his/her own name.
- Security: In case of secured small business loan, the title papers/other details of the security being pledged have to be submitted to the bank or financial institution.
The bank may ask for other details on a case-to-case basis, and the borrowers should keep these details ready before they submit the application. Some banks also require the business to be vetted for profitability before they give the small business loan.
Small Business Loans from Different Banks and Financial Institutions
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.
Small Business Loans from State Bank of India
India’s largest bank has a strong presence in the small business sector and offers a range of products for small business owners. Some of its loans for the SME sector are:
- SBI Asset Backed Loan: The loan is available for all small businesses including manufacturing units, trading enterprises as well as service providers. The small business loan is provided against mortgage of property and can be used for any purpose including working capital requirements, capacity expansion, research and development, and any other short-term requirement. The bank gives a loan up to 60% of the value of the property and also offers a dropline overdraft facility.
- SBI e-Smart SME e-Commerce Loan: This small business loan is given to authorised sellers of products on e-commerce portals such as Snapdeal or Flipkart. The bank offers the small business loan from Rs. 1 lakh to Rs. 25 lakh with a minimum tenure of 6 months. Interest rate is base rate + 1.7% to 3.7% for loans above Rs. 10 lakh or base rate + 2.0% / 2.3%.
- 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 two 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 Fleet Finance Scheme: This small business loan is given to owners of commercial vehicles such as trucks, trailers, tankers or buses. The business must have been in existence for 5 years or more and must have a minimum of 10 vehicles. State Bank mandates a minimum fleet addition requirement of ten new vehicles. The bank gives a loan from Rs. 50 lakh to up to Rs. 10 crore. The maximum repayment period is 66 months (5 years and 6 months).
- SBI Pradhan Mantri Mudra Yojana: 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; Kishore 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.
Also Read: Pradhan Mantri Mudra Yojana full Details
Small Business Loans from Punjab National Bank
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.
- Super Trade: This small business loan is given for working capital requirements of trading businesses. The loan can be taken for Rs. 10 lakh to Rs. 5 crore. It is a secured debt product and is given against stock and book debts for up to 75% of the total funding requirements. The bank may ask for collateral security that should be at least 150% of the loan amount.
- 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.
Small Business Loans from Bank of Baroda
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 and should not have a turnover of more than Rs. 150 crore. The loan amount can range from Rs. 10 lakh to Rs. 2.5 crore, and must be repaid within 12 months. The small business loan is a secured loan and requires an equitable mortgage on the fixed assets of the business.
- SME Medium Term Loan: This small business loan is similar to the short term loan extended by the bank to borrowers. The loan is given to meet working capital requirements or for other business needs. The business must have had satisfactory dealings with the bank for the last 3 years and should have a turnover between Rs. 1 crore and Rs. 150 crore. The loan amount can range from Rs. 25 lakh to Rs. 5 crore, and must be repaid within 36 months. Like the short term loan, the medium term loan from Bank of Baroda is a secured loan and requires a first charge or equitable mortgage on the fixed assets of the business.
Small Business Loans from 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 debt 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. 1 crore under the Credit Guarantee scheme. The term loans have a 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 two types of collateral free loans, viz., Business Loan with unsecured overdraft facility up to Rs. 25 lakh and CGTMSE-backed loans of up to Rs. 1 crore. The Smart Business Loan is given in the form of an overdraft facility and the borrowers need to repay at least 5% of the utilised limit every month.
Also Read: How to Get Collateral Free Business Loans?
- 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. 50 lakh.
In addition to these banks, various other banks and financial institutions provide these loans to their small business customers. The banks also provide the necessary support to various micro and small units that utilise the schemes provided by the government to set up or grow their business.