Top 5 Best Small Business Loans You Should Know
The SME sector is one of the crucial growth drivers of India, contributing more than 40% to the total GDP. Post-demonetisation, various schemes have been rolled out to strengthen their growth further.
Small and medium-sized enterprises have diverse business requirements such as expansion, purchasing equipment, paying salary to employees, buying inventory, managing cash flow for daily operations, or recovering from losses. MSME/SME loans help fund start-up organisations and entrepreneurs shore up cash flow for different needs.
Individuals looking for small business loans can now easily avail these through various financial institutions. These loans help MSMEs fund their operational needs. Both existing and new businesses can apply for these loans, depending on the credit rating and nature of the company.
Top 5 MSME Business Loans In 2021
The Make In India initiative by GOI aims to encourage MSME and SME entrepreneurship across 25 sectors in infrastructure, manufacturing, and service activities. To boost this sector, the Indian government has come up with several business loan schemes. Also, the transformational power of the private-public partnership has become a hallmark for the Make In India program. The government offers several small business loan schemes, such as –
- MUDRA Loans – The Government of India extends MUDRA loans to small business entities and start-ups for financial assistance in the form of low-cost credit. Several public and private banks are authorised to offer MUDRA loans to MSMEs operating under the different sectors that fall under this scheme.
- Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGMFS) – The CGMF scheme provides financial support to small and micro-enterprises. It is a collateral-free credit scheme applicable for both new and existing businesses that pass its eligibility criteria. Small business units can avail credit of up to Rs. 10 lakhs without mortgaging any collateral.
- Credit Link Capital Subsidy Scheme for Technology Upgradation (CLCSS) – This government-aided business loan finances technological upgradation. Through the CLCSS scheme, businesses can obtain the necessary funds to upgrade their equipment and technology. Entrepreneurs can avail up to 15% subsidy for their business under this scheme. However, only sole proprietorship business, partnership firms, public or private limited companies can apply for it.
- MSME Business Loan – The MSME loan launched by GOI is for working capital financing, which aims to fund and encourage MSMEs in India. New and existing businesses can acquire loans of up to Rs. 1 crore to support their business needs at 8% interest rates.
- National Small Industries Corporation Subsidy (NSIC) –The NSIC subsidy offers two kinds of financial benefits for MSMEs – Marketing Assistance and Raw Material Assistance. Businesses qualifying as an MSME with Udyog Aadhaar Memorandum/EM-Part-II are eligible to apply for this scheme under Single Point Registration Scheme.
Businesses can acquire term loans ranging from Rs.1 lakh to Rs.1 crore. The loan amount, however, can exceed the value depending upon the nature of a business. The repayment tenure for such loans is anywhere between 12 months and 10 years. Borrowers must pay EMIs over a specified period to repay such loans.
An overdraft facility is a credit agreement between an authorising bank and business account holders to liquidate or withdraw funds higher than the actual balance up to a certain approved limit. The lender charges interest on the utilised loan amount on a daily basis. The limit sanctioned depends on a borrower’s credit history, repayment history, and cash flows.
Invoice financing is a process through which small businesses can avail advance funds against outstanding invoices. This method is most appropriate for companies to meet their short-term financing requirements by availing credit on a certain portion of the unpaid invoices. This scheme can help businesses enhance their cash inflow, pay employees and suppliers, and meet other financial requirements. Potential entrepreneurs can apply for invoice financing through apps such as MANDII, an independent platform to help small businesses gain quick access to funds.
Large businesses in the manufacturing sector can purchase new machinery and equipment or upgrade the existing ones by availing equipment finance. Businesses and enterprises can also enjoy tax benefits by obtaining equipment finance. However, the rate of interest on such funding options differs from lender to lender.
Small-business loans for MSMEs and SMEs are crucial to developing the Indian economy. However, they come with several prerequisites. To ensure quick sanctioning of collateral-free business loans, several online platforms such as MANDII facilitates sanctioning of small business loans in a very short period.