India has the second-largest volume of MSMEs in the world, with 48 million companies situated across the country. However, even though these businesses contribute to 8% of the country’s overall GDP, they often need to compromise on their growth plan and ambitions due to a lack of funds. Most businesses tried to obtain these funds from formal credit channels, but many aspects deterred lenders from approving these loans. Improper documentation, questions regarding business profitability, short-term business cycles – these factors made the loan approval process harder for business. Thus, they had to settle for informal credit channels that were more expensive.
However, the situation is changing now. The government itself is taking initiatives to promote the growth of MSMEs in India, which is changing the perception around SME loans. Now, banks and NBFCs are more open to giving credit to MSMEs. So, if you’re searching for a reliable financing avenue for your business, then taking an SME loan is an excellent course of action because of the following benefits.
Unlike other forms of funding such as angel investing and venture capitalism, taking a business loan means that you won’t have to forgo any control of your business. There are various types of loans that can be used according to your business purposes. Invoice discounting for your receivable bills, going for either secured and unsecured business loans, funding your working capital requirements with a working capital loan, taking a merchant cash advance if your business has a high volume of card payments – there are many options at your disposal.
The flexibility of these SME loans extends towards their repayment structure as well. You can choose a payment plan that comfortably aligns with the cash flow of the business. From regular EMIs to bullet repayments, the repayment options available at your disposal for these loans are quite flexible.
Quick and Hassle-Free Application
Documentation used to be an issue for businesses in the past when they had to take a business loan. However, this is not the case today. Now, it’s easy to apply for SME loans since they require minimum documentation and the time taken to provide the loan amount is relatively shorter than other modes of finance.
You can also opt for an unsecured SME loan, which further reduces the time taken to obtain these funds since you won’t have to provide any security or declare an asset as collateral. In fact, many players have entirely digitised the loan application process. So, with just a few clicks, you can easily apply for an SME loan.
Improved Cash Flow
The flexible nature and quick approval process of SME loans result in an immediate boost to your business’ cash flow. This can be quite helpful when you’re expanding the business, making up for any seasonal financial requirements, or launching a campaign.
If you’re worried about the long-term impact of this loan, then keep in mind that most forms of SME loans are used to fund short-term requirements. Thus, you can manage your business’ cash flow accordingly and not be weighed down by any long-term debt.
Lower Interest Rates
When compared to informal credit channels, banks and financial institutions provide a relatively lower rate of interest on SME loans. Thus, your business can bear a lower level of risk, as opposed to if you obtained credit from these informal channels.
The interest rate on your loan is decided based upon your business’ viability, financial condition, credit history, and loan tenure. This reduced interest rate means that your company doesn’t need to spend a substantial amount of funds on repayment, which frees up your cash flow to focus on other business-critical needs and requirements.
The question of choosing a suitable mode of finance to fund business requirements can leave most owners stumped. Thankfully, SME loans have emerged as a viable source of funding for your business in modern times. The flexible nature of these loans, quick approval process, attractive interest rates, and a welcome addition to your cash flow are all excellent benefits that you can enjoy by going for this mode of finance.