SME Loans (Small and Medium Enterprise)

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 Lenders Offering SME Loans in India

Name of the Lender	Interest Rate	Loan Amount	Repayment Tenure
State Bank of India	8.25% to 16.95%	Up to Rs.500 lakh	Up to 7 years
ICICI Bank	Varies according to type of loan	Up to Rs.2 crore	Up to 7 years
Bajaj Finserv	18% onwards	Up to Rs.30 lakh	Up to 60 months
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. ICICI Bank SME Loans

Features:

• Partnership firms, sole proprietorship firms, public limited firms, and private limited firms are eligible to avail the SME loans from ICICI Bank.
• The loan will be given for fulfilling the working capital requirement.
• Commercial/residential/industrial property or liquid securities can be provided as collateral.
• The loans will be offered as term loan, export credit, cash credit, or overdraft.

Processing Fee	Stamp Duty Charges	Commission on Bank Guarantees and Letters of Credit	Commitment Fees	Foreclosure Charges
Up to 2% of the facility amount plus applicable taxes	As per state tax laws	Up to 2% p.a. on pro-rata basis	Average utilization below 60% - 0.50% on the difference between the actual utilization and average quarterly utilisation	4%

3. Bajaj Finserv MSME/SME Loan

Features:

• The loans can be availed without providing any collateral.
• The loans are quickly approved and processed, usually within 24 hours.
• Provides the facility of doorstep pickup of documents.
• The loan account can be managed online with a few clicks and funds can be accessed easily.

Document Processing Charges	Bounce Charges	Penal Interest	Prepayment Charges
Rs.1,449 plus applicable taxes	Up to Rs.3,000	2% per month plus taxes	4% on the loan amount plus taxes

4. 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

5. 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

6. 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	-

7. 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

8. 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

9. 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.

10. 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?

Answers: 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?

Answer: 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?

Answer: 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?

Answer: 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?

Answer: 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?

Answer: 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)?

Answer: 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?

Answer: 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?

Answer: 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?

Answer: 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.