Exploring different types of small business loans available in India

India is currently a developing market in the world and is home to millions of small and medium-sized businesses. These small and medium-sized businesses continue to be an important source of employment for a sizable section of India's population and contribute significantly to GDP growth. 

The government and RBI launched a number of small business lending programmes to support the growth of these industries and businesses since they understand the significance of SMEs.

As the name implies, a small business loan is finance given to organisations, typically ones that are small or medium-sized, for the operation of the firm without requiring any equity to be given up. Comparatively speaking, a small business has fewer employees, lesser income, and less need for working capital.

A small business loan in India can be used for a variety of things, including operating and growing the company, purchasing inventory and equipment, and paying for office costs. Small company loans are the best option for entrepreneurs who want a simple approach to finance their operations. These loans come with quick processing times, straightforward eligibility requirements, borrower-friendly features, and competitive interest rates.

Features of small business loans

• Money is obtainable for a reasonable cost

More than 80% of small enterprises, according to statistics, don't survive through their initial stages due to a lack of funding. The government and various banks are making an effort to offer financial support to small businesses that are having financial problems by approving small business loans to SMEs and MSMEs. The funding is based on the needs and possibilities of the firm. One of the best features of these loans is their reasonable pricing, though.

• Flexible loan facilities

Some banks have a great programme called "flexi loans" that provides business financing with a lot of flexibility. The loan allows business owners to withdraw money as needed and repay according to cash flow. Business owners that use Flexi Loans have the option of paying only the interest at first and making principal repayments at the end of the tenure period.  

• Loans to small businesses provide unsecured finance

Even though it can be challenging for banks to trust small businesses and start-ups with repayment, some still offer unsecured loans. Many small businesses are now able to obtain funding that they would not have been able to through a traditional business loan.

• Easy and online access

Online access is available to several government funding programmes for small businesses and business loans. Business owners no longer have to go through the inconvenience of visiting banks and government officials.

Best small business loan initiatives launched

• PMMY, or the Pradhan Mantri Mudra Yojana

PMMY offers lending solutions under the Micro Units Development and Refinance Agency (MUDRA) to address the financial needs of various industries, business activities, and company/entrepreneur segments. Banks typically provide MSMEs with loans up to Rs. 10 lakh without requiring collateral.

Eligibility: Loan applications are accepted from Non Corporate Small Business Segment (NCSB), which consists of proprietorship and enterprise businesses in both urban and rural locations. Following are a few instances of NCSBs:

• Shop owners

• Fruit and vegetable vendors

• Truck drivers

• Food-service establishments 

• Repair facilities

• Machine operators 

• Small businesses

• Artisans

• Food processors and others.

Eligibility: Any type of manufacturing, trading, or service activity is eligible for a MUDRA loan.

Financial benefits: MUDRA provides incentives through these interventions:

Shishu Loan: Up to Rs. 50,000.

Kishor Loan: 50,000 to 5 lakh rupees in amount.

Tarun Loan: from Rs. 5 lakh to Rs. 10 lakh.

• MSME Business Loans for Startups in 59 Minutes

The MSME sector is expanded via MSME Business Loans for Start-ups in 59 minutes, which are provided at a low interest rate of 8.50% and higher. The programme, led by Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), intends to automate several loan appraisal processes so that borrowers receive eligibility letters and loan approvals within 59 minutes. The applicant is free to select any bank for simple access. Following the verification process, the loan is typically anticipated to be sanctioned or disbursed in 7-8 working days.

Eligibility: The borrower must be GST and IT compliant and have a minimum of six months of bank history in order to be eligible for this specific loan. The following criteria must be completed in order to determine whether a company is eligible:

• Income or revenue, 

• repayment ability, 

• already-existing loan facilities, and 

• any additional considerations determined by lenders (banks or NBFCs)

Financial benefits: This programme offers startup businesses loans with loan amounts ranging from a minimum of Rs. 1 lakh to a maximum of Rs. 5 crore. This programme offers interest rates starting at 8.50%.

• Credit guarantee scheme (CGS)

To improve and streamline the loan delivery system to the MSME sector, the government introduced the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) plan. Under this programme, lending institutions include public, commercial, and international banks as well as Regional Rural Banks (RRBs), SBI with its affiliate banks, and Regional Rural Banks.

Eligibility: This programme is open to both new and established MSMEs engaged in manufacturing or service operations, with the exception of those in retail trade, educational institutions, agricultural, Self-Help Groups (SHGs), and training facilities.

Financial benefits: The following are some programme specifics:

• The working capital loan facility under this MSME programme for business owners is up to Rs. 2 crore per borrowing unit.

• 85% of the credit facility for loans up to Rs. 5 Lakh is granted to microenterprises. 

• 80% of the credit facility for MSMEs owned/operated by women and all loans to the North Eastern Region, including Sikkim.

• The guarantee cover provided is up to 75% of the credit facility up to Rs. 1.5 crore.

• The guarantee cover for MSME retail trade is 50% of the defaulted amount, up to a maximum of Rs. 50 lakh.

• The SIDBI Make in India Soft Loan Fund (SMILE) for MSMEs

Small Industries Development Bank of India (SIDBI) oversees SMILE, which was established in 2015. This program's goals include offering lenient lending terms, ensuring the required debt-to-equity ratio is met for the development of new MSMEs, and facilitating the expansion of existing ones. The SMILE plan offers interest rates starting as 8.36%.

Eligibility: Application for this programme is open to both newly established businesses and those in the manufacturing and services industries. This programme will also cover current businesses that are upgrading their operations or launching new initiatives to grow their business. The maximum loan payback length is 10 years, with a moratorium of 36 months.

Financial benefits: The SMILE loan amount granted is at least Rs. 25 lakh and up to Rs. 5 million. 

• Stand Up India

Stand up India, an initiative run by the Small Industries Development Bank of India (SIDBI), was created to finance women business owners and those who fall under the SC/ST category. This programme offers at least one SC/ST borrower and one female borrower per bank branch bank loans ranging from Rs. 10 lakh to Rs. 1 crore.

Eligibility: Businesses in the manufacturing, services, or trading sectors are eligible for this programme. A SC/ST or female entrepreneur must hold at least 51% of the stock in non-individual businesses.

Financial benefits: The following are some programme specifics:

• It provides composite loans ranging from Rs. 10 lakh to Rs. 1 crore to finance up to 75% of the project, including the term loan and working capital.

• The loan's requirements include that it must pay for 75% of the project's costs. If the borrower's contribution plus convergence support from any other programmes equals or surpasses 25% of the project's cost, it will not be applicable.

• The interest rate would be the lowest one that may be used, which is (Base Rate (MCLR)) plus 3% plus Tenor Premium.

• Bank Credit Assistance Programme

The scheme, which is run by the National Small Industries Corporation (NSIC), intends to fulfil the financial needs of MSME firms. With a number of nationalised and private sector banks, the NSIC has signed a Memorandum of Understanding (MoU) for the purpose. The NSIC arranges for bank credit support (fund- or non-fund-based limits) through syndication with these banks at no cost to MSMEs.

Eligibility: MSMEs with Indian registrations

Conclusion

For companies of all sizes to finance their operations and meet their growth goals, small business loans are a crucial instrument. Given the variety of small business loan options available in India, it's crucial to do your homework and identify the one that best suits your company's needs.