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What is an SME Loan? Benefits of taking an SME loan in 2022

What’s an SME loan? SME stands for Small and Medium Enterprises. They account for 40% of India’s exports, and are second only to agriculture in terms of most practiced occupations.

The country’s economy has been greatly benefited by SMEs. An SME is a firm that has been identified based on its investment and its sector. Further details are provided in the table below.

Investment on Plant, Machinery, and Equipment* Annual Turnover*
Small Enterprises Up to Rs.10 crore Up to Rs.50 crore
Medium Enterprises Up to Rs.50 crore Up to Rs.250 crore

What does an SME loan mean?

SME loans are a type business loan that is intended for individuals who plan to start their own company to have a positive impact on the community and industry.

These credit facilities are useful for supporting and promoting local industries as well as the overall economic growth in India.

Borrowers must repay the loan amount at a fixed rate of interest. SME loans are the best way to raise funds for those who want to start a company or expand their existing business. There are many lenders on the market and numerous attractive offers. A well-designed business plan will usually suffice to qualify for a loan between Rs.5 lakh and Rs.5 crore.

There are many types of SME loans: term loans, working capital loans and equipment loans. Pradhan Mantri Mudra Yojana Stand Up India is one example.

Benefits of taking an SME loan

  • Flexible repayment terms are available for SME loans, which can be repaid in as little as 12 months or as long at 60 months.
  • SME loans are available without collateral.
  • Online application is quick and simple. Also, approvals are quicker.
  • Minimal documentation requirements.

Fees and Interest Rates

1. Processing Fees

Different lenders might offer SME loans with different processing fees. Choose a lender that charges a low processing fee.

2. Interest Rates

It is possible for the interest rate to vary depending on the type of loan you choose and the financial institution.

Lenders may consider other factors such as collateral provision and loan amount.

They also take into account creditworthiness, repayment ability, and creditworthiness.

It can range between 8.40% to 24% p.a. It can range from 8.40% p.a. to 24%

Criteria for Eligibility

Although the eligibility criteria for SME loans may differ between lending institutions, most have the same basic rules. To reduce rejection chances, please take a look at the criteria of the lender before you apply.

1. Purpose: Loan application must meet business needs such as buying machinery or raw materials, availing work capital, marketing products/services and expanding the employee base, product line or product lines, or entering new geographical locations.

2. Age: A candidate must be between 25 and 55 years old.

3. Experience: A minimum of three years business experience is required.

4. Evidence: A candidate must submit at least one year of business IT returns.

How do I apply?

After you choose the lender for your SME loan application, you will need to get the SME loan application form back from the lender. The following fields are possible.

  • Name of the company
  • Date of incorporation
  • Addressee of registration
  • Address of the company
  • Contact number and email address of the company
  • Code of industry
  • Permanent Account Number (PAN).
  • GST number

Documents are required

  • Bank account details
  • If any, existing loan details
  • Parent company/associates/group entity details
  • Annual accounting report with relevant profitability/liquidity-oriented details
  • Personal guarantee letters from directors/partners/promoters
  • Business registration documents
  • Certificate of registration for business as a SME
  • A copy of the sales tax returns filing documents
  • A copy of the income tax returns filing documents
  • Any sector-specific licenses such as a drug license for a pharmaceutical company


1. How do I calculate my ability to repay SME loans EMIs?

Lenders prefer that your SME loan EMI be 25% of your income. This ratio is also known as the Debt-to Service Ratio. This means you can use 75% of your income to make other commitments, so there’s still money available to pay the monthly instalments.

2. Can I close my loan before the term?

Your loan can be paid off before the stipulated tenure. This is possible without any restrictions.

3. Can I apply online for a SME loan?

Many lenders offer an online application portal for SME loans. Simply visit the lender’s site and search for SME loan section. After reviewing the eligibility criteria and loan details, click the “Apply Now” button.

Complete all information and attach copies of any documents required to apply for the loan. Voila! Within the time limit, a bank representative will contact your regarding your inquiry.

4. Which entities are eligible to apply for SME loans?

SME loans are available to entities such as private limited companies, partnerships, sole-proprietors, and private limited companies.

5. Can I get an SME loan to pre-ship and/or post-ship?

SME loans can be used for pre-shipment or post-shipment support. This is in addition to other purposes such as meeting financial obligations, meeting performance, meeting financial obligations, purchasing commercial assets, expanding your business, and meeting working capital needs.

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By Kapil Garg

I am a professional Loan and Insurance advisor with an approved license helping people with my services like Loans, Retirement Planning, Investment Planning.

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