• SME Loans (Small and Medium Enterprise)

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    Loans which cater to the financial needs of the Small and Medium Enterprise (SME) segment are known as SME loans. This segment is responsible for providing huge employment opportunities at relatively lower capital costs and at the same time, also aids in industrialisation of backward and rural areas. By contributing highly to domestic production, significantly increasing export earnings, and by being operationally flexible, SMEs play a key role in the development of the nation.

    Top Banks Offering SME Loans in India

    Name of the Bank Interest Rate Loan Amount Repayment Tenure
    State Bank of India 8.25% to 16.95% Up to Rs.500 lakh Up to 7 years
    Axis Bank Based on business profile Up to Rs.5 crore Up to 60 months
    Tata Capital 19% onwards Up to Rs.50 lakh Up to 36 months
    YES Bank - Up to Rs.4 crore -
    Karur Vysya Bank Linked to Credit Score - Up to 7 years
    HDFC Bank 15.65% to 21.20% Up to Rs.50 lakh Up to 48 months
    Aditya Birla Capital - Up to Rs.1 crore Up to 48 months
    Mahindra Finance 13% to 15% Up to Rs.10 lakh Up to 36 months

    1. State Bank of India SME Loans

    Features:

    • The bank offers 16 types of SME loans some of which are SME eBiz Loan, Stand Up India, Simplified Small Business Loan, SME Smart Score, PM Mudra Yojana, Warehouse Receipt Finance, etc.
    • All the 16 schemes have different purposes, interest rates, eligibility, repayment tenures, etc.
    • Some of these SME loans are unsecured while some are asset-backed.
    • The SME schemes cover the financial needs across sectors such as services, manufacturing, trading, etc.
    Name of the SME Loan Nature of Scheme Maximum Loan Amount Processing Fee Collateral
    SME eBiz Loan Cash credit Rs.500 lakh
    • First year – 1% of sanctioned amount plus taxes
    • 2nd year onwards – 0.35% plus taxes
    		 At least 35% in the form of land/building, liquid securities, etc.
    Simplified Small Business Loan Dropline overdraft facility Rs.25 lakh - Minimum 40%
    Standup India Working Capital or term loan Rs.1 crore 0.20% of loan amount Not required
    SME Smart Score Cash credit or term loan Rs.50 lakh for manufacturing units and Rs.25 lakh for trade and services As per bank’s terms and conditions As per bank’s extent norms
    SME Credit Card Term loan or cash credit Rs.10 lakh As applicable to SBF and SSI units No collateral for SSI but for SBFs, loans over Rs.25,000 will require a collateral/guarantee
    Doctor Plus Term loan Rs.5 crore 50% concession on card rates No collateral required for loans up to Rs.2 crore. For loans above Rs.2 crore and up to Rs.5 crore, 25% tangible security needs to be provided
    Medical Equipment Finance Term loan Rs.20 crore 50% concession on rate cards No collateral required for loans up to Rs.2 crore. For loans above Rs.2 crore and up to Rs.20 crore, 25% tangible security needs to be provided
    E Dealer Finance Scheme Cash credit Based on requirement Rs.10,000 to Rs.30,000 Up to 50% based on the tie-up
    E Vendor Finance Scheme Cash credit Based on requirement Rs.10,000 to Rs.50,000 Nil
    Asset-backed loan Dropline overdraft Rs.20 crore 1% of the limit Immovable property in the form of registered or equitable mortgage of land or building
    Fleet Finance Term Loan Rs.10 crore 1% of the limit No collateral required for loans up to Rs.1 crore. For loans over Rs.1 crore, at least 20% of the tangible asset needs to be provided as collateral
    PM Mudra Yojana Working capital and term loan Up to Rs.10 lakh 0.5% of loan amount Not required
    Export Packing Credit Working capital Based on requirement As per working capital/cash credit limits As per working capital/cash credit limits
    Lease Rental Discounting Term Loan Rs.50 crore As per existing instructions Equitable mortgage or any other acceptable property
    Open Term Loan Information Not Available Information Not Available Information Not Available Information Not Available
    Warehouse Receipt Finance Working capital demand loan/cash credit facility/revolving demand loan Based on requirement and eligibility Nil to Rs.3 lakh Personal guarantee of directors, partners, etc.

    2. Axis Bank SME Loans

    Features:

    • Axis Bank offers 10 types of loans for the SME segment namely MSE Power, Services Power, SME power, Business MPower Overdraft, Business Mpower Term Loan, Power Rent, LCBN Power, Zero Collateral Loans, Business Loan for Property (BLFP), and Business Power.
    • The maximum loan amount that can be availed under the Axis Bank SME Loans is Rs.20 crore.
    • Loans availed under these schemes can enjoy a maximum repayment of 10 years.
    • Some of these loans are provided against collateral while some do not require collateral.
    Name of the Scheme Nature of the scheme Loan Amount Collateral Coverage
    MSE Power Term loan and working capital requirement including letter of credit, rupee export credit, bank guarantee, etc. Rs.10 lakh to Rs.5 crore 100% of loan amount
    Services Power Working capital and term loan requirement including cash credit, letter of credit, inland bill discounting, rupee export credit, etc. Rs.10 lakh to Rs.5 crore 100% of loan amount
    SME Power Working capital and term loan requirements including inland bill discounting, cash credit, bank guarantee, etc. Rs.10 lakh to Rs.5 crore 125%
    Business MPower Overdraft Overdraft facility Rs.10 lakh to Rs.5 crore Residential, commercial, and industrial property to be provided as collateral
    Business Mpower Term Loan Term loan Rs.10 lakh to Rs.5 crore Residential, commercial, and industrial property to be provided as collateral
    Power Rent Term loan Rs.5 lakh to Rs.20 crore Contracted lease rental receivables
    LCBN Power Short term loan Rs.5 lakh to Rs.5 crore Nil
    Zero Collateral Loans Working capital and term loan Rs.5 lakh to Rs.1 crore -
    Business Loan for Property Loan for acquiring office space for business Rs.5 lakh to Rs.5 crore -
    Business Power Working capital to bank’s existing Current Account customers Rs.10 lakh to Rs.2 crore Flexible collateral security

    3. Tata Capital

    Features:

    • No collateral is required to avail a business loan from Tata Capital
    • The business loan offered is custom-built to suit the borrower’s business needs
    • Offers flexible EMI options for loan repayment
    • The interest loan is fixed for the entire loan tenure
    Processing Fee Penal Interest Foreclosure Charges Loan Cancellation Charges
    Maximum 2.75% of the loan amount plus GST 3% of overdue amount per month plus GST 4.5% on the future principal outstanding on the current loan plus GST (Foreclosure allowed only after 9 months) Rs.5,750 or 2% of loan amount, whichever is higher

    4. YES Bank SME Loans

    Features:

    • Offers 6 types of SME loans namely YES Samriddhi, YES Suyog, Smart Overdraft, Cash Backed Lending Program, Channel Finance, and YES GST
    • The loan products are customised to match the business requirements of borrowers
    • Anywhere anytime banking facility without any additional cost
    • Borrowers with good credit score can enjoy preferential pricing.
    Name of the scheme Nature of the scheme Maximum Loan Amount Collateral
    YES Samriddhi
    • Fund based – Overdraft, term loan, cash credit, export credit, etc.
    • Non-fund based – Buyers credit, letter of credit, bank guarantee
    		 Rs.4 crore Commercial/residential/industrial plot
    Yes Suyog
    • Fund based – Working capital demand loan, overdraft, term loan, cash credit, etc.
    • Non-fund based – Bank guarantee, buyers’ credit, letter of credit,
    		 Rs.2 crore Industrial/commercial/residential/NA plot/surrender value of LIC/FD/BG
    Smart Overdraft Dropline overdraft and overdraft Rs.1 crore Industrial/commercial/residential/NA plot/surrender value of LIC/FD/BG
    Cash Backed Lending Program Non-fund based – Bank guarantee, letter of credit, buyers’ credit - -
    Channel Finance Working capital - -
    YES GST Overdraft based on GST returns Rs.1 crore -

    5. Karur Vysya Bank MSME Loans

    Features:

    • Karur Vysya Bank offers MSME loans under 3 categories – KVB MSME Pack, KVB MSME Easy Loan, and KVB Micro Plus
    • Under the KVB MSME Pack, three types of loans are offered namely KVB MSBE Cash, KVB MSME Term Loan, and KVB MSME Vendor Bill Discounting
    • The maximum repayment tenure for the loans is 7 years
    • The loans are quickly processed, and the rate of interest is competitive
    Name of the Loan Nature of the Loan Margin Security
    KVB MSME Cash Short term loan, open cash credit, etc.
    • OCC - 25% on stocks, 40% on receivables
    • SOD – At least 40% on immovable property
    • STL – 25%
    		 Current assets
    KVB MSME Term Loan Short or medium-term loan 20% for machinery and 40% for building Immovable assets
    KVB MSME Vendor Bill Discounting Bill discounting 15% 75% of immovable assets
    KVB MSME Easy Loan Loans to existing services and manufacturing units with a turnover of below Rs.100 lakh
    • LC/BG - 15% cash margin
    • OCC – 40% on receivables, 25% on stocks
    • HPL(M) - 50% on old machinery, 20% on new machinery
    • SOD-RE – 33.33% on primary security
    		 Current Assets
    KVB Micro Plus Loans for microenterprises - 125% for immovable properties and 100% for liquid securities

    6. HDFC Bank Business Loan

    Features:

    • The loans offered by HDFC Bank does not require any security or collateral.
    • Dropline overdraft facility is offered in the range between Rs.5 lakh and Rs.15 lakh.
    • No foreclosure is allowed before 6 months from limit setting.
    • Borrowers can avail life coverage by paying a nominal premium.
    Rack Interest Rate Loan Processing Fee Prepayment Charges Overdue EMI Interest Amortisation Schedule Charges
    15.65% to 21.20% Up to 2.50% of the loan amount (Minimum – Rs.2,359 and maximum – Rs.88,500
    • 7 to 24 months – 4% of principal outstanding
    • 25 to 36 months – 3% of principal outstanding
    • Over 36 months – 2% of principal outstanding
    		 2% per month on EMI or principal overdue subject to a minimum amount of Rs.200 Rs.200

    7. Aditya Birla Capital SME Finance

    Features:

    • Five types of SME loans are provided by Aditya Birla Capital and they are Line of Credit, Unsecured Business Loan, Secured Business Loan, Working Capital Demand Loan, and Supply Chain Financing Solutions – Invoice Discounting.
    • The rate of interest charged on the SME loans is fixed which means there will be no change in the interest rates throughout the loan tenure.
    • The repayment of the SME loans can be done through NACH or ECS.
    • Borrowers can enjoy flexible tenures ranging between 12 months and 48 months.

    8. Mahindra Finance SME Loans

    Features:

    • Mahindra Finance offers 7 products under the SME loan category and they are project finance, equipment finance, corporate loans, secured business loans, working capital loans, bill discounting, and lease rental discounting.
    • The SME loans offered by Mahindra Finance can be structured against lease rents, retention receivables, and other such identified receivables.
    • Any tangible security purchased with the loans such as plant, machinery, etc., and any other tangible property will act as collateral for the loan.
    • Short term loans will have a fixed rate of interest while loans with a tenure of over a year will have a floating interest rate on them.
    Type of Loan Loan Amount Repayment Tenure Loan Margin Security
    Project Finance Up to Rs.40 crore Up to 5 years Based on the profile of the customer Usually 1.5 times of asset cover
    Equipment Finance Up to Rs.25 crore 6 months to 5 years Flexible Usually 1.5 times of asset cover
    Corporate Loans Up to Rs.25 crore 1 year to 5 years - Usually 1.5 times of asset cover
    Secured Business Loans Rs.10 lakh onwards Up to 36 months - Unencumbered commercial, residential, or industrial, and land properties
    Unsecured Business Loans Rs.1 lakh to Rs.5 lakh Up to 12 months - No security required
    Working Capital Loans Up to Rs.25 crore Up to 36 months - Plant and machinery, land and real estate property, fixed deposits, deposit certificates, etc.
    Bill Discounting Up to Rs.10 crore Up to 12 months - Kisan Vikas Patras (KVPs), securities issued by state and central government, etc.
    Lease Rental Discounting Up to Rs.25 crore Up to 7 years - Mortgage of the leased property

    Eligibility Criteria for SME Loans

    The eligibility criteria for SME loans may vary from lender to lender but in general, most lenders look for the below-given eligibility criteria:

    Who can apply Proprietors, self-employed individuals, partnership firms, private limited companies engaged in the business of trading, manufacturing, and services
    Age of the borrower
    • Minimum age – 21 years
    • Maximum age – 65 years at the time of loan maturity
    Minimum Annual Income of the Business Rs.1.5 lakh
    Minimum Turnover of the Business Rs.40 lakh
    Profit Status of the Business Should have been making profits for the last 2 years
    Business Experience Borrowers should have been in the same line of business for at least 3 years and have at least 5 years of total business experience

    Documents Required for Availing SME Loans

    When applying for an SME loan, you will be asked to furnish the below-given documents:

    Identity Proof Passport, Aadhaar Card, Driving License, Voter’s ID, PAN Card, etc.
    Address Proof Aadhar Card, Passport, Voter’s ID, Driving License, etc.
    Proof of Business Business Entity Proof, Partnership Deed, Incorporation Certificate, Shops and Establishment Certificate, Articles of Association
    PAN Card Of business entity and of partners/promotors
    Company Financials Provisional/audited financials – tax audit reports, balance sheet, profit and loss, VAT returns, etc., for the last 3 years
    Bank Statements For the last six months
    Application Form Duly filled and signed

    Please note that based on the type of applicant (whether partnership firm or individual), nature of business, income profile of the applicant, etc., the lender may ask for additional documents.

    Frequently Asked Questions on SME Loans

    1. How can I repay my SME loan?

      There are many ways by which you can make the repayment of your SME loan. They are postdated cheques (PDCs), Electronic Clearing Service (ECS), Standing Instruction (SI), direct debit, and National Automated Clearing House (NACH). The preferred mode of repayment can vary from lender to lender.

      The repayment can be done in equated monthly instalments (EMIs) which can be calculated by using the EMI Calculator tool.

    2. What is a dropline overdraft facility?

      The facility offered by lenders wherein borrowers can withdraw extra money from their business current account is known as an overdraft facility. It works as a short-term loan. Dropline overdraft facility is when the overdraft is taken for a longer term (maximum 10 years) but does not require annual renewals or attract yearly charges. The money withdrawn using the dropline overdraft facility can be used in the expansion of business or working capital.

    3. Can I prepay my SME loan?

      Yes. Most lenders will allow you to prepay your SME loan but will charge you a prepayment penalty. However, there are some lenders who do not charge any penalty for foreclosing or prepaying your SME loan. One such lender is Mahindra Finance.

    4. Can I get an SME loan without providing any collateral?

      A majority of lenders will ask for a collateral or security for an SME loan. However, there are some lenders such as IIFL Finance, State Bank of India (scheme-based), etc., who do not require you to provide a collateral for an SME loan.

    5. What is bill discounting?

      When the sales bills of reputed consumers are discounted leading to a reduction of the cash cycle of the business, it is known as bill discounting. It helps free up cash that the business can utilise for funding its operations, as working capital, and fulfil any other financial requirements.

    6. If I wish to avail a lease rental discounting loan, what security do I need to provide?

      To avail a lease rental discounting loan, the property against which the lease rentals have been discounted can be provided as security.

    7. What is the maximum amount of loan I can avail under the Pradhan Manti Mudra Yojana (PMMY)?

      You can avail loans ranging between Rs.50,000 and Rs.10 lakh under the PMMY to finance your small business enterprise in trading, manufacturing, and services sectors. Agriculture and its allied activities are also covered under the Mudra loan.

    8. I am a doctor. Am I eligible for an SME loan?

      Yes. Under the ‘Doctor Plus’ scheme offered by State Bank of India, you can avail SME loans ranging between Rs.10 lakh and Rs.5 crore to buy medical equipment, setting up your own clinic/nursing home/drug store, etc., and to expand your existing medical business. The repayment tenure for this loan ranges from 3 years to 7 years.

    9. Is there a special SME loan for women entrepreneurs?

      Women entrepreneurs can avail SME loans under a special scheme known as ‘Stand-Up India’ scheme. Under this scheme, women entrepreneurs can get finance from Rs.10 lakh to Rs.1 crore to set up a greenfield project. The repayment of this loan can be done in a maximum of 7 years. The scheme can also be availed by people belonging to the Scheduled Caste and Scheduled Tribe category.

    10. I wish to set up my own fashion boutique. Can I get an SME loan for that?

      Yes. Any business that generates income is eligible for an SME loan under the Pradhan Mantri Mudra Yojana. Since a fashion boutique is an income generating business, you can definitely avail the Mudra loan.

    A GST rate of 18% will be applicable on banking services and products from 01 July, 2017.

    News About SME Loans (Small and Medium Enterprise)

    • Grant programs for SMEs in India launched by Facebook

      Facebook has launched a $100 million grant scheme for the Small and Medium Enterprises (SMEs) sectors in India which has been severely impacted due to the outbreak of Covid-19. The grant money from Facebook will help the SMEs stay afloat. 

      The grant money that the SMEs will receive could be used to pay their staff, pay rent, or invest in a new venture.  

      SMEs who wish to receive grant from Facebook will have to submit their application between 15 September and 21 September 2020. The chosen business will receive a sum of Rs.63,000 and another Rs.38,000 in optional Facebook advertisements. 

      Any business with 2 to 50 employees as on 1 January 2020 and who have been in existence for at least a year can apply for this grant. The location of the business should be in cities where Facebook operates. 

      Once the application for the grant has been submitted, it will be reviewed by Facebook. The company may ask for additional information and it is the responsibility to respond to it within 48 hours. 

      16 September 2020

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