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How to Get a Small Business Loan in India Easily?

  • How to get a small business loan in India easily?

    Do you have a small enterprise for which you need immediate funds to expand operations? If so, you can get SME business loans to meet your business requirements without any financial burden. 

    If your small business is doing well in terms of profits and you have a good credit score, you can get a loan amount based on your needs. You can avail yourself of affordable interest rates and flexible loan tenure.  You can take a small business loan for the following purposes:

    • Buy new stocks 
    • Purchase equipment
    • Office space expansion
    • Business marketing 
    • Payment for additional staff

    Benefits of taking a small business loan in India

    Small business loans come with a host of features and benefits that you can avail of. For instance, you can get repayment flexibility, allowing you to make repayments based on your small business’ cash flow. An SME business loan can get you a lower interest rate compared to other unsecured loans. However, your interest rate depends on your loan amount, loan tenure, business model, financial conditions of your business, and credentials.  

    Other benefits that make loans for small businesses a better option to finance your business requirements are:

    • You do need to pledge your asset with considerable value as collateral. 
    • You can also avail of tax deductions on the profit utilized for repaying the loan amount. 
    • There are several loans for small businesses, such as term loans, standard business loans, etc. 

    Tips to increase your small business loan eligibility

    To get your preferred SME business loan amount and a lower interest rate, it is imperative to meet your lender’s eligibility criteria. If you do not meet their requirements, you must improve your small business loan eligibility by creating a well-thought business plan. You will also need to convince your lender that your business has a positive cash flow and can repay the loan amount without fail. 

    Also, make sure to improve your credit score. A higher credit score leads to the approval of small business loans in India. It also ensures a lower interest rate. A minimum CIBIL score of 700 would be required to get SME financing. 

    Types of small business loans available in India

    There are several types of small business loans based on your business requirements, which are: 

    • Working capital loan: It is a type of SME loan used to fund every business expense, such as rent and operational costs. You can apply without any collateral and get a lower interest rate, and the repayment tenure can range between 12 to 24 months. 
    • Term loan: It is provided by financial institutions to fulfill the short-term purposes of a small business. The loan tenure can go up to 2 years, depending on your lender.
    • Machinery loan: As the name suggests, it enables you to buy new machines. If your business operation requires new and updated machines, you can apply for a machinery loan without giving anything as collateral. 

    Things you must know before availing of a small business loan

    Before applying for small business loans in India, you must know the underlying things to make an informed decision:

    • You must have a solid reason to apply for a loan. 
    • Different lending options based on your business needs. 
    • The loan tenure within which can repay the loan amount with interest.
    • Have a proper business plan
    • Keep your business financial statements ready
    • Meet the eligibility criteria
    • Check if you can afford to get a loan
    • Know your small business loan’s repayment terms
    • Make sure to check the penalty charges involved for making prepayments.

    Steps to get small business loans

    Follow the underlying steps to apply for SME finance:

    • Choose the type of loan 

    There are different types of small business loans in India that you can choose based on your needs. For instance, you can opt for a working capital loan, term loan, cash credit facility, or machinery loan. 

    • Find the right lender

    Small business loan offers differ across lenders in India. Compare at least three financial companies’ interest rates, loan amount, and repayment tenure. Choose a lender that offers the best deal. 

    • Check your credit score 

    Your credit score plays a vital role in securing SME finance. So, check your credit score for discrepancies and ensure to rectify mistakes, if any. The higher your credit score, the greater your chances of getting the best deal.

    Prepare your documents

    The requisite documents to apply for SME financing for your small business determines your eligibility. These documents include: 

    • A minimum of Rs. 500,000/- sales in the previous years. 
    • A minimum ITR of Rs. 150,000 in the previous financial year. 
    • Business registration documents
    • Identification proof: PAN Card, Bank statement, etc. 
    • Commercial or house property documents (in the case of a secured loan)
    Harshit Agrawal 11-Aug-2021 977 Views

About Author

Harshit Agrawal -
Harshit Agrawal heads digital marketing for Muthoot Pappachan Group from its head quarter based in Kochi, India. He has managed digital marketing & activations for brands such as Maruti Suzuki, Hero MotoCorp, Bharti Airtel, Google, Mankind Pharma...read more

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