Running a business calls for planning, commitment, dedication and most importantly – financial investment. There is an interplay of factors that determine the growth and sustainability of a business enterprise. These include the sector in which the business operates and a range of internal and external factors which cast their shadow. To manage the impact of these factors, it is vital to set high goals and make progress in the right direction.

To be able to stand up to these unforeseen circumstances, businesses call for an adequate and regular source of funding. There is no denying the fact that these small loans as well as the SMEs (small and medium enterprises) that come into existence through these loans. play a key role in the economy and its growth. The SMEs are at the heart of any economy because of their ability to generate vast employment. Did you know that 90 per cent of the SMEs are responsible for creating over 50 per cent of employment worldwide? According to the World Bank data, formal SMEs contribute up to 40 per cent of national income (GDP) in emerging economies. And this data gets a notch higher when we include informal SMEs into it.

If you go by the World Bank estimates, there will be a requirement of 600 million jobs by 2030 globally. That’s the reason why the development of SMEs becomes vital and is a priority for governments.

Despite the huge potential of this sector in employment generation, a key factor that hinders its growth is lack of access to finance, especially in emerging markets and developing countries. However, by looking out for the right channels of financing. a business can grow to the next level.

 

What hampers the growth of SMEs? 

A lot of times, your business can suffer in the absence of adequate finance. You may also consider ways to expand and promote your business to be able to make the mark in the industry. With more funds available at your disposal, you are always in a better position to handle any situation such as hiring potential candidates, obtaining raw materials, or striking a deal with prospective suppliers. With adequate financing, you can take risks and try new ways to push products in the market which in turn reimposes faith in your clients and employees as well. This puts your company on a pedestal as you are now open to experiment and leverage more opportunities. But all the above planning to achieve new milestones is possible if you have access to funding, Some businesses are less likely to obtain bank loans than large firms, which make them turn to friends and family.

With the new source of financing and the thrust laid by the government on supporting the MSME industry, financing is no longer a struggle for those looking to take the leap of faith. Businesses now understand the significance of opting for an SME loan rather than relying on funds from family or money lenders by putting their resources and property at risk.

 

How SME loan can prove to be a successful bet? 

A loan is no longer seen as a liability but rather a necessity to thrive in a competitive environment. For businesses, loans have emerged as a window to give wings to business aspirations and turn opportunities into success. Although there are a variety of business loans available in the market, it is always beneficial to take a loan specific to your business. SME loans offered in the market catering to businesses are always the best bet to keep your business up and running or if you are aiming to expand. To avail an SME loan, you can either go to the bank or also find out non-banking financial entities who are offering similar loans. The market has witnessed the emergence of several fintech players, who offer loans along with taxation related offerings and more. The bank may take its own time to process the loan depending on the criteria and the conditions fulfilled.

As a result of new offerings in the SME loan segment, you can opt for longer tenors to support the growth, export, and diversification of the business. You can also avail a short term SME loan to meet emergency credit situations arising out of unforeseen situations.

 

What should you consider before availing a business loan?

 

Decide on the purpose of your loan: Always make sure you understand the purpose of the business loan that you are availing. One of the advantages of SME loans is that the funding can be used in multiple ways to fulfil your business goal.

There are no restrictions on where you can use the loan amount. In fact, you should carefully analyse the requirement for a loan and how it will be utilised in your business.

Check on the eligibility criteria: Getting a loan may seem like a daunting task for a business but these days, NBFCs have come out with easier and quicker loan disbursal systems that put your mind at ease. However, the eligibility criteria may differ for each lending partner.

 

SME Loan interest rate: Make sure you are aware of the interest rate for SME loans and read the documents carefully before signing up for a loan.

 

Check on the repayment: Lenders offer flexible tenure, ranging from 12 months to 48 months. Also, find out if there are any hidden costs. You can also repay your loan before time but you will have to bear the prepayment charges as well. Make sure you are aware of the components of a loan.

 

Make sure you compare the rates and check on charges: It is always better to compare the interest rates offered by different lending companies. Discuss the rates, compare them between the various options you have. Apart from interest rates, learn about the other charges which are applicable.

Earlier, taking a plunge into business would give anyone a goose bump, but thanks to the booming start-up environment and ‘Make in India’ initiative, more people are encouraged to step into businesses. For existing and established businesses, the road towards financing is smooth as the lending institution can easily track the business but new businesses or start-ups may get stuck due to lack of funding. However, SME loans are mostly unsecured in nature and don’t require any collateral in exchange for the loan. So, take a step ahead and apply for an SME loan to give that edge to your business without much worry.