A company registered as a Small and Medium Enterprise (SME) can apply for SME loans to expand its operations. These loans can be used to purchase raw materials, meet working capital requirements, invest in machinery, equipment, and other fixed assets, or other tailored business needs. The loan amount can be as high as Rs.50 lakhs, offered by reputed financial institutions and NBFCs (non-banking financial institutions).
4 Crucial Aspects of Getting Approved for an SME Loan Instantly
SMEs can avail of required funds at attractive interest rates. Here are a few key aspects that play a crucial role in SME loan approval:
Sound Business Plan
Applicants with a well-defined business plan can persuade the lender to sanction a loan at favourable terms. Business plans help lenders to assess the business performance in the next few years. They can determine the credit risks if the loan is sanctioned to a business. So, applicants should have a financial projection based on current business profitability and market analysis. There should be an overview of the company’s management, business goals, and management experience – how it can grow the business with effective decisions and loan amount usage. Thus, a business can increase the chances of obtaining a loan approval faster.
SME loan eligibility criteria decide the approval or rejection of an application. To make the loan approval process faster, businesses must understand the eligibility criteria first. Commonly, business loan eligibility revolves around business sales and annual income. Standard eligibility requirements for SME loans are as follows:
- The applicant’s age limit is 22-65 years.
- The applicant should have experience of at least three years in current business.
- Self-employed persons, private limited companies, partnership firms, and proprietors can apply for SME loans.
- IT Returns acknowledgement copy is required.
- They should have at least 10 Lakhs annual business turnover.
- Financial statements should show stable incomes and profits for at least two years.
A business loan calculator can help applicants to check their loan eligibility.
Personal and Business Credit Score
Businesses should have a good credit score of 750+, which indicates creditworthiness to repay the loan on time. A high credit score improves the chances of loan approval in the first go. Lenders check applicants’ credit scores and business credit scores separately. Few factors can help borrowers to maintain a high credit score. It includes keeping the credit utilisation ratio low, ideally less than 25%. There should be a long and spotless credit history. Applicants should pay EMIs of existing loans on time. Of course, a stable cash inflow in a business adds to its credit score.
Loan Repayment Strategy
Lenders need to ensure that the loan can be repaid on time. So, loan applicants should have a detailed repayment strategy to tell them how the loan can be paid fully on time. It helps lenders to be relaxed and build trust with the applicant. It is necessary that the loan application is made with a convenient repayment tenure. Loan EMIs should not impact the cash flow of the business.
Quick Steps to Avail of SME Loan Online
Access and Fill out the Loan Application Form
Visit the lender’s official website. Access the SME Loan Application and correctly fill in personal, professional and financial details. The lender’s representative will approach the applicant regarding the business loan. They will provide details about possible loan options, interest rates, and tenures.
After the pre-assessment of eligibility, applicants can upload soft copies of the required documents online. Lenders can facilitate their clients with the doorstep pickup facility also. The lender will review the documents submitted.
Sign the Loan Agreement
If the lender is fine with the documents, they will send the loan agreement with a confirmation email of approval. There will be all terms and conditions regarding the loan, like interest rate applicable, loan amount, loan repayment tenure, etc. Reading all terms is vital for business owners. Sign it and send it to the lender. The lender will disburse the loan amount within 24-48 hours.
Applying for an SME loan after considering important aspects is helpful to ensure a smoother and quicker loan process. Checking the eligibility criteria using a business loan calculator helps businesses to understand where they stand in obtaining an SME loan. Understand the lender’s eligibility criteria to make informed decisions and keep the required documents handy to prevent complications at the later stages.