Types of SME Loans in India: A Complete Guide for Small Businesses

Micro, Small, and Medium Enterprises (MSMEs) might not be huge, but their impact is. Data reveals that they contribute to 30% of India’s GDP, acting as the economy’s backbone. 

Despite this, 78% of Indian MSMEs struggle to secure basic working capital. Those that do often complain of complex funding procedures, painfully high interest rates, or unrealistic collateral demands that add to the financial strain rather than easing it.

If you’re a part of this industry, you might have faced these challenges too. But there’s a simple solution to it: SME loans.

Curious to learn more? Read this blog as we break down the different types of SME loans in India and how you can apply for one. Let’s start!

What Is an SME Loan?

An SME loan is a special type of business loan for the financial needs of Small and Medium Enterprises (SMEs), a subset of MSMEs. 

Just like any loan, SME loans need to be repaid in full with interest within a stipulated time period. However, they carry certain advantages. 

SME loans often get approved faster. There are choices where you don’t have to offer anything as security, and you can usually borrow the amount of money that fits what you need. Some lenders may also give you lower interest rates and let you pay back the loan over a longer time. This makes it easier to handle the payments.

Looking for cost-efficient loan options for your business? Hero FinCorp’s SME Loan interest rates start at just 14% p.a. Check out now!

Types of SME Loans in India

Depending on what you need money for, here are a few of the best SME loans to consider:

1. Working Capital Loans

An SME working capital loan is a short-term credit that helps businesses manage day-to-day expenses, like raw materials, rent, salaries, etc. It’s usually unsecured and repayable within 12 months.

2. Term Loans for Business Expansion

Business expansion loans are designed for companies looking to invest in their long-term capabilities. This could include buying fixed assets, upgrading facilities, or extending their reach into new markets. Banks can structure these loans with security or without it, and the repayment periods are longer. This matches the investment's return timeline.

3. Loans for Women Entrepreneurs

If you're a woman running a business, there are special women business loans in India just for you. They often come with lower interest rates and easier payment options. Government programs such as Stand-Up India and Mudra Yojana are there to provide additional help, supporting women in building successful businesses.

4. Unsecured Business Loans

Unsecured business loans refer to short- to medium-term collateral-free loans. They usually have higher interest rates and stricter eligibility criteria, but quicker approval times. For example, working capital loans, cash credits, etc.

5. Machinery and Equipment Finance

A machinery loan is a type of equipment finance for SMEs that helps them purchase or upgrade their business machinery and equipment. Since these loans are secured against assets, they have lower interest rates and longer repayment tenures.

6. Loans Against Property (LAP) for SMEs

LAPs refer to loans against property for business. They are a type of secured loan where businesses or individuals pledge their commercial or residential property as collateral to obtain high-value credit. The rate of interest is low, and the repayment tenure is long.

SME Loan Eligibility Criteria

Getting ready to apply for an SME loan? Here are some general business loan eligibility criteria to keep in mind:

• Applicant’s Age: Must be between 25 to 65 years
• Nationality: Indian
• Occupation: Loan seekers can be self-employed professionals, non-professionals, or entities like Limited Liability Partnerships (LLPs), firms, or trusts
• Business Status: At least 5 years of experience in the current business

If you meet these criteria, you may be eligible for an SME loan of up to ₹50 lakhs from Hero FinCorp, with a repayment tenure of up to 48 months.

Disclaimer: These eligibility criteria apply only to Hero FinCorp. Requirements may vary across lenders.

Key Documents Required for SME Loans

Here are some common business loan documents you should keep handy while applying for the loan:

How to Apply for an SME Loan

Applying for an SME loan usually involves multiple formal procedures and paperwork. But at Hero FinCorp, the process is fully digital.

Here is Hero FinCorp’s loan application process for business loans:

1. Visit the Hero FinCorp website and go to the Business Loan page
2. Fill out the business loan application form and upload the required documents
3. Enter your loan amount and select a repayment tenure

If you’re eligible, a representative will contact you for further details. 

Why Choose Hero FinCorp for Your SME Financing Needs?

Hero FinCorp business finance is a strong option for SMEs seeking funding. Here’s why:

• Quick Approval: At Hero FinCorp, the paperless, digital loan application is followed by a swift approval process. If you’re eligible, your loan will be approved within 48 hours only. 
• Collateral-Free Options: Hero FinCorp’s MSME business loans are collateral-free, so you don’t need to pledge any assets. 
• Low Interest Rates: With interest rates starting at just 14% per annum, Hero FinCorp is one of the best SME lenders for businesses looking for economical funding options. 

Choose the Right SME Loan: Choose Hero FinCorp

It’s not easy to run and grow a small business. From day-to-day operations to larger expenses, if you don’t have a solid source of finance, you will eventually find it difficult to sustain in the market. 

However, the right SME loan can make a big difference. From offering quick finance at low interest rates to giving collateral-free options, SME loans for business growth aren’t just a resource; they’re the lifeblood of every small business. Just review your eligibility, choose the best repayment plan, and you’re good to go.

With Hero FinCorp, the entire process is simple and digital. Find out if you qualify and apply for an SME loan today.

Frequently Asked Questions

What is the maximum loan amount I can get as an SME loan?

The amount you can borrow depends on your profile and the lender’s rules. With Hero FinCorp, you can borrow up to ₹50 lakhs if you get approved.

Are collateral-free SME loans available?

Yes. Hero FinCorp provides 100% collateral-free SME and MSME loans.

How long does it take to get approval for an SME loan?

Typically, SME loans take 7 to 15 days for approval. Hero FinCorp speeds things up with a fully digital process, and approvals can happen in just 48 hours.

Can a new startup apply for an SME loan?

Yes. Any new startup can apply as long as it meets the eligibility criteria.

What distinguishes a working capital loan from a term loan?

A working capital loan is for short-term operational expenses, like inventory and salaries, while a term loan is for long-term capital investments like machinery or expansion.

Are there any specific schemes for MSME sector businesses?

Yes, there are several helpful schemes. Some of the main ones include Pradhan Mantri Mudra Yojana (MUDRA), Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), Credit Linked Capital Subsidy Scheme (CLCSS), and Prime Minister’s Employment Generation Programme (PMEGP).

Disclaimer: The information provided in this blog post is intended for informational purposes only. The content is based on research and opinions available at the time of writing. While we strive to ensure accuracy, we do not claim to be exhaustive or definitive. Readers are advised to independently verify any details mentioned here, such as specifications, features, and availability, before making any decisions. Hero FinCorp does not take responsibility for any discrepancies, inaccuracies, or changes that may occur after the publication of this blog. The choice to rely on the information presented herein is at the reader's discretion, and we recommend consulting official sources and experts for the most up-to-date and accurate information about the featured products.