SME Financing: A Variety of Options Available to Suit Your Needs

SME financing represents an important function of the finance market where capital is supplied, as well as, acquired for a variety of firms. This capital is normally provided in the form of overdrafts and loans, equity bond issues, private equity, and government funding. However, some of the finances are also generated internally by the businesses from their earnings and are later supplied as trade credit. These finances are normally created for small firms to serve their needs which they face certain financial problems during numerous phases of the business.

Purpose of SME Financing

Since SME financing is primarily focussed on serving the needs of mid-sized and small businesses, they have their own set of needs which vary from that of large enterprises. These needs cover working capital requirements, project financing, bill discounting, and equipment purchase. The capital provided by the SME’s can be used for long-term requirements as well as working capital. If you wish to avail SME loan, you must pass some criteria mentioned by the SME lenders.

Types of SME Loans

There are ten major types of business loans which you can find throughout the world. These SME loans include secured and unsecured business loans, peer-to-peer lending, government business loans, revenue-based financial loans, pension-led funding, invoice financing, commercial mortgages, young entrepreneurs loans, and specialist business loans.

SME Segment Classification

SME segment is subdivided into three major forms comprising microenterprises, small enterprises, and medium enterprises. These enterprises vary the by investment made on machinery and plants. In microenterprise, INR 25 lakh has to be invested in machinery and plant in the manufacturing sector, and INR 10 lakh has to be invested in machinery in a service sector. In a small enterprise, investment will be between INR 25 lakh and 500 lakhs. While in medium enterprises, the investment should lie between INR 500 lakh and INR 1000 lakh for the manufacturing sector and between INR 200 lakh and INR 500 lakh for equipment.

Need For SME Financing

Though the basic need for SME financing arises when a new business tries to spread its wings, there are some other conditions too which makes SME financing necessary for the businesses. From warehousing needs and employee hiring to product launches and expansion plans, there are several reasons for which SME financing has become the backbone of new firms.

Eligibility Criteria for SME Loan

To avail the SME loan, there are certain criteria in which an entity should fit in. The required criteria are mentioned below.

  • An entity should be a partnership or sole proprietorship firm.
  • It should be a public or private limited company.
  • The firm must have earned some profit in the previous two years.
  • The firm must fall under MEMED act and should be defined by Reserve Bank Of India.
  • The firm must be either a manufacturing, service or trading unit.

Benefits of SME Financing

Certainly, SME financing is one of the best options that can be chosen by a businessman. It not only provides him with sufficient funds but also facilitates easier accessibility. However, its benefits are not limited to these two prospects. So, let us know about the other prime benefits that one can avail by indulging in SME financing.

Accessibility

Financial institutions maintain a worldwide presence, and if you have a passably good reputation in the market, the management will easily consider the option of lending you cash. Hence, SME financing is a much easier way to gather cash for flourishing your business.

Tax Benefits & Growth Prospects

Most of the small businesses relish the benefit of tax relaxation as business financing features repayment of profit after the tax exclusion. So, this is just another way to get some tax benefits. Also, it serves you with finances which is the major need of any business. With a good financial backup, a new business can easily ensure that all the other needs are met properly.

Flexibility

If you want to fulfil your business needs, you can make a choice among different type of loans provided by financial institutions. There are many schemes which are designed specifically for MSE’s. You can choose the scheme that suits your needs in the best possible way.

Certainly, SME financing plays a major role in the success of new enterprises. Apart from providing them with the funds to start and expand, they also serve you during the emergency. All the businesses in a way or other are dependent on financial institutions for their survival. Therefore, it becomes crucial to acknowledge the value of SME financing and learn about numerous ways to grow your business. So, if you are a new firm which is looking for growth prospects, don’t forget to explore the SME financing and its prime role in the business sector.

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