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Understanding Basics of SME Business

India is full of people with great ideas and educational backgrounds. Many want to start their own business, but lack of financial support leads to many putting off the idea of starting a business. Fortunately, today, many ideas and plans can come to life, grow, compete, and create jobs if they can get the right kind of funding at the right time.

Small and medium-sized enterprises (SMEs) are a significant source of entrepreneurial expertise, innovative thinking, and employment. Still, they can also be the businesses most affected by globalization and frequently face specific challenges and barriers.

For instance, SMEs often need help to obtain capital or credit, particularly during the early start-up stage. In this post, we will read more about what an SME can do.

SME: What is it?

To put it simply, an SME is a company with few employees, few assets, and a small income. The government sets the cap, which is sometimes changed to reflect changes in the economy. The Micro, Small, and Medium Enterprises Development (Amendment) Bill was revised in 2018 to cover microbusinesses with a maximum yearly revenue of Rs. 5 crores.

Over the years, SME banking has made it easier for businesses to run their operations. Different standards have been established in every nation for SMEs. Enterprises are typically assigned the SME designation based on their yearly turnover, investments, and the number of workers.

SME Types & Classification

It is essential to keep in mind that different criteria are used to categorize SMEs. As per Section 7 of the Micro, Small, and Medium-Sized Enterprises Creation Act of 2006, how much a company invests in its industry determines whether it is a small or medium-sized business. This depends on two things:

  • The capital investment in machinery and equipment
  • The money the company made

Apart from this, several other factors determine the difference between different SMEs.

Read more: Why Businesses Need MSME Loans

Why Should Micro, Small, or Medium-Sized Businesses Look For SME Banking?

A micro, small, or medium-sized business can’t use the same resources as a well-known business. However, there might be chances for an SME to expand. For example, a small grocery store would have had more customers during the coronavirus pandemic. However, it’s possible that plenty of buyers bought things with credit. The store would need to stock up if it wanted to stay in business. The store could profit from an SME business loan, enabling the owner to buy inventory without waiting for cash flow.

You might be curious about an SME banking loan and how it differs from the existing business loans that banks provide. An MSME loan, or SME business loan, is a type of loan that is only for small businesses. An MSME could need money for various things, such as regular operations or expansion. Let’s look at some more advantages of SME banking.

Read more: 5 Ways to Utilize a Working Capital Loan for MSME

Advantages of SME Business Loans

Although getting a loan from your own bank may seem simple, traditionally, only a select few people have been able to experience the advantages of small business loans. This situation is altering in India, nevertheless, due to the numerous government policies and programs that support SMEs. Here are some significant benefits of an SME loan:

1. Low Documentation Requirements

The least amount of paperwork is required for SME loans, which is the main benefit. Some easy-to-find records like bank statements, GST information, and income tax returns are needed in many cases. To get access to these, small firms do not have to jump through hoops.

  • Free of collateral

SMEs are unsecured borrowers, so a bare minimum of business documentation proof is sufficient.

  • Reasonable

In order to make sure the deal is fair, interest rates are often set with the business’s ability to pay in mind.

  • Adjustable Term

The SME’s comfort level can also be used to determine how long these loans last. For instance, a large percentage of SME loans have short terms, ranging from one month to 36 months. Banks provide alternatives for weekly, monthly, or bimonthly installment payments, making repayment flexible.

2. No Fees for Pre-payment

If you can pay off your loan in full before the end of the period, you won’t have to pay interest and won’t have to pay any extra fees for paying it off early.

Where Can I Get an SME Banking Loan?

Every company has unique requirements. For instance, the financial needs of a manufacturing SME and a service-based enterprise may differ. Because of this, many SME loans with various requirements are provided by reliable and accredited banks like HDFC.

Their SME loans are easy to avail of, and the terms and conditions are incredibly business-friendly. To take an SME banking loan from HDFC, one can get in touch online or reach out to the nearest branch!

Ajeet Sharma, the founder of Financegab and a well-known name in the field of financial blogging. Blogging since 2017, he has the expertise and excellent knowledge about personal finance. Financegab is all about personal finance which aims to create awareness among people about personal finance and help them to make smart, well-informed financial decisions.


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