SME Lending: What You Should Know

Updated on: Jan 11th, 2024

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6 min read

Many individuals will have ideas and business plans; however, these ideas remain unrealised due to inadequate access to finances. The possibility of ideas and plans incepting, growing, competing, and generating employment—depends on its ability to being funded at the right time.

New businesses entering the market will not only strengthen ideator but also contribute to the GDP of the country as well as employ a number of people, putting food on their plates. Currently, SMEs have been contributing over 40% of the nation’s GDP just next to the contribution of agriculture. In that case, how easy or simple is it for an individual to set up his own business/enterprise in this country?

1. Why is SME Lending Important?

The first step, of course, after your ideation and market research, in setting up a business is acquiring the necessary funds. This is the make or break stage for your business idea. Not everyone will have the required funds saved up. The alternate path to get the funds is to borrow. Borrowing may not be as easy as your father or a friend lending you money. You have to meet the managers of various financial institutions and share your business idea and other facts and figures to convince the lender that your proposal will work.

To reduce the complexity of the process, the government is striving to provide all possible amenities and services crucial for its inception and development. Several schemes and programmes are offered by the government to nurture the culture of small scale industries. Also, numerous banks provide financial assistance in the form of financing. Collateral-free loans are provided as well making it much easier for budding entrepreneurs to focus on their goals rather than worry about funding.

2. Categories Under SME Lending

There are three main ways for an SME to raise working capital or capital for any other purpose. They are as follows:

  1. SME Loans:

    Loans offered for small and medium enterprises by banks and other lending institutions are called SME loans. Every bank/financial institution has its own set of loan schemes designed for SMEs with different terms and conditions applicable. A unique scheme may be dedicated to supporting women entrepreneurs. In addition, most of these loans are offered without collateral.

    Bank

    SME Loan Schemes Offered

    State Bank of India

    • Cotton Ginning Plus
    • Doctor Plus Scheme
    • Export Packing Credit
    • E Dealer/Vendor Finance Scheme
    • Fleet Finance
    • Medical Equipment Finance
    • SME EBiz Loan

    HDFC Bank

    • Working Capital Finance
    • Working Capital for Contractors
    • Working Capital for Transporters
    • Term Loans
    • Business Loans
    • Healthcare Medical Equipment Finance

    ICICI Bank

    • Cash Credit/Overdraft
    • Export Credit
    • Term Loans

    Axis Bank

    • MSE Power 
    • Services Power
    • SME Power
    • Business MPower Overdraft
    • Business MPower Term Loan
    • Power Rent
    • LCBN Power
    • Zero Collateral Loans
    • Business Loan for Property
    • Business Power
  2. Government Scheme:

    Other than the bank loans, the Government of India has come up with many schemes and programmes to encourage and support the SME sector. The government has defined the purpose of each of the schemes and has set up process flow and guidelines as to who can avail the benefits of the scheme. A few such schemes are:

    • Pradhan Mantri Mudra Yojana (PMMY)
    • Credit-Linked Capital Subsidy Scheme
    • MSME Business Loan for Startups in 59 Minutes
    • Credit Guarantee Scheme
    • Stand-Up India
    • SIDBI Make In India Soft Loan Fund
  3. SME Resources:

    SMEs can also raise capital to purchase raw materials or even finished goods from many other sources. Some of these sources are listed below:

    • Merchant cash
    • Invoice finance
    • Business credit score
    • Business credit card

3. How ClearTax Can Help You?

You, as a businessman, might have experienced the loan approval procedure where you have to visit the bank/financial institution to enquire about the loan scheme, submit loan application along with supporting documents, and wait for several days to hear from the bank. However, ClearTax is going to make the process much easier for you by acting as a bridge between you and the lenders. ClearTax helps you secure collateral-free loans through a paperless process. The turnaround time for this digital journey will be real quick. Apply for an SME loan on our website and share the basic set of documentation. ClearTax shares this info with the lender; once the lender processes your data, ClearTax will give you a heads up on whether your loan application can be taken forward or not. All this within 24 hours and no processing fee!

Go ahead with your instincts and try our SME lending service now!

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Quick Summary

Many individuals struggle with funding their business ideas, hindering growth and employment opportunities. SMEs contribute significantly to a nation's GDP, and various schemes and programs facilitate financial support. There are multiple ways to raise capital: SME loans, government schemes, and alternative sources. Platforms like ClearTax simplify the loan process for businessmen, offering collateral-free, quick loan solutions.

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