Every business at some point of time has to look for external sources to meet its financial requirements. Some of the common reasons behind seeking external funding include managing daily operations, purchase assets like land, machinery or even technological investments, expand business to offer new product lines and services or enter new geographical areas. There are primarily two ways of raising such funds. The first way is to raise money from public by offering the company’s stock through an IPO. The second way is to borrow money either by issuing bonds, debentures or take a loan from a financial institution. Owners who prefer to retain the equity and hence the voting rights and management decisions, prefer to go via the debt route i.e. loans/bonds, etc. as there is no dilution of ownership in that. While there are many financial institutions or banks in India that offer business loans, State Bank of India (SBI) being the largest player in the market and one of the premier public sector banks in the country offers diverse kinds of business loans as they understand that the financial requirements of an enterprise or business varies significantly depending upon its domain or functional area. Given below are some of the types of business loans that is offered by SBI;
This is a convenient way of raising funds for businesses which are involved in any of the following sectors – Services, Trading or Manufacturing. This hassle-free business loan is available against mortgage of property
- Purpose of loan
This loan is extended to business units for all their work-related needs such as purchase of equipments and fixed assets, meeting requirements of working capital requirement, funding their expansion or growth plans, modernization or technology up-gradation, Research and Development, shoring of NWC or any other short term requirement
- Loan Amount
Loans up to the value of Rs twenty crores are offered under this scheme. On a case to case basis, this limit may be extended by the bank.
- Tenure or Repayment Period
Maximum of 180 months
- Pre-Payment Penalty
2% of the limit is charged as pre-payment penalty
- Applicants are eligible to get a loan amounting to up to 60% of the value of property offered as mortgage. For loans, up to Rs. 10 crore, the LTV (loan to Value) Ratio is 3/5th of the realizable value of the asset and for other loans (i.e. Above Rs. 10 crore and up to Rs. 20 crore, the LTV is taken at 50% of the realizable value)
- Availability of Dropline overdraft facility.
- Applicants are eligible to receive complimentary cards upon applying for loan under this scheme, namely SME Insta Deposit Card and SBI Business Debit Card
- The bank offers free Cash pick up facility
- Moratorium period is allowed under this scheme, provided the maximum tenor does not exceed 96months.
PMMY is Pradhan Mantri Mudra Yojana which is basically a Flagship scheme by the Government of India that had been launched on April 8, 2015 with the exclusive Motto of “Funding the Unfunded”. The aim was to provide credit facilities to about 5.77 crore small/micro enterprises / units engaged in non-farm activities in the country, which are outside the formal banking fold.
Micro and Small scale business units and individuals are eligible for applying for loan under this scheme provided:
- They have a plan for business (Manufacturing and Services Sector) in a non-farm sector or non-corporate sector that will generate income
- Credit needed is below 10 lakhs
- The borrower or applicant shouldn’t have been classified as a defaulter by any banks or other financial institution(s) with regard to any loan applied and availed earlier.
Some example of candidatures eligible for assistance under PPMY include fruit and vegetable vendors, , food-service units, truck operators, repair shops, small industries, machine operators, etc. are eligible for assistance
- Purpose of the loan
This loan is extended as term loan for business-related purposes as well as to meet working capital requirements.
- Loan Amount
The maximum loan amount that can be availed as part of this scheme is Rs. 10 Lakhs. It is also further sub-divided into 3 categories depending on the phase of growth and funding requirements of the beneficiary
- Shishu: Loans up to Rs. 50,000/-
- Kishore: Loans above Rs. 50,000/- and up to Five lakhs
Tarun: Loans above Five lakhs to 10 lakhs
- Interest Rate
Interest Rates are linked to the prevailing Base Rate
- Accounts under CGTMSE - 200 bps above Bank Rate
- Others - 230 bps above Bank Rate
(CGTMSE stands for Credit Guarantee Fund Trust For Micro And Small Enterprises)
Tenure or Repayment Period
- Working Capital: Repayable on demand.
Term Loan: 3 - 5 years including a moratorium of up to 6 months.
- Primary Security: Hypothecation of stocks or machinery or movables that have been purchased from the finance provided by the Bank.
Collateral: No collateral security is required for loans where the amount does not exceed beyond Rs. 10 lakhs and the recipient is a unit in the MSE sector. This is in accordance with the guidelines issued by RBI.
Tenure or Repayment Period
- Term Loan: It needs to be repaid within a period of 3 - 5 years (This is including a moratorium period of up to 6 months)
Working Capital: This is repayable on the bank’s demand.
Customers of the below mentioned segment with satisfactory performance track record for the last 2 years
• Small industrial units
• Small retail traders
• Professionals & self-employed individuals and professionals
• Small business enterprises and transport operators
Purpose of loan
This loan is provided to fund or finance all credit requirements of the applicants (Including purchase of shops, equipments etc.
Cash Credit and/or Term Loan
The maximum amount of loan that is available under this scheme is Rs. 10 lacs
Floating and linked to Base Rate.
• Term loan needs to repaid in maximum 5 years in suitable installments
• Sanctions for Working capital loans are valid for 3 years with annual review subject to satisfactory conduct of loan accounts
• Primary: Hypothecation of stock in trade, receivables, machinery, office equipment
• Collateral: Nil (Eligible activities may be covered under CGTMSE guarantee scheme)
Transport operators who currently own fleet of commercial vehicles (Goods and Passenger) such as Trucks, Tankers, buses, trailers, etc. are eligible provided:
- They have experience of at least five years in the domain
- They have at least 10 vehicles currently
- They do not fall under the category of Small Road Transport Operators (SRTOs)
- They either need a loan whose value is not less than Rs. 50 Lakhs or the loan is being availed for purchasing at least ten new vehicles
- They should hold necessary permits, license, approvals etc.
- Satisfactory performance track records. Not classified as a defaulter in regards to loan by any other bank or financial institution.
- Have scores which classifies them for a loan as per the scoring model
Purpose of Loan
- The loan should be availed with the objective to finance or fund new vehicles (Four-wheelers such as trucks, trailers, tankers, luxury buses, cars, etc. Or finance is needed for fully built vehicles, chassis, body building, Road Tax, Octroi, Registration & Insurance
This is a term loan
The maximum amount that can be availed as loan under this option is Rs. 10 crores.
Tenure or Repayment Period
The loan needs to be repaid within a maximum of 66 months.
- Loan facility valid for 6 months from the date of sanction
- Option for zero collateral security is also available.
This loan is applicable for sellers who are registered with e- tailers (Flipkart/Snapdeal) for at least six months.
The objective behind this scheme is to provide financial assistance to authorized sellers who are engaged in selling their products through an online platform for the mentioned e-tailers.
- The maximum loan amount that can be availed under this scheme is 25 Lakhs. The minimum loan amount should be Rs. One Lakh.
- This is a working capital loan.
Loans below Rs. 10.00 Lakhs (Under MUDRA)
- Manufacturing Units: 2.00% above Bank Rate
Trading Units: BR + 2.30% above Bank Rate
For Loans above Rs. 10.00 Lakhs:
- Manufacturing Units: Bank Rate + 1.7% to Bank Rate+ 3.70%
- Trading Units: Bank Rate + 2.20% to Bank Rate + 4.20 %
Tenure for Repayment:
- The loan needs to be repaid within a period of one year
- No collateral required for loans below and up to Rs. 10 Lakhs. For others, 25% collateral security would be required
- In case of women entrepreneurs applying for this loan, they would be eligible for a 0.25% concession
- Also there would be a special concession ranging between 0.50% - 1.00% for applicants who provide collateral to the tune of 50% - 100% respectively.