What do you need to know before taking SME finance in India?
SMEs play a significant role in driving the economy of any nation. Financial backing is integral to grow and keep up with the competition. In India, a large number of SMEs rely on SME loans from financial institutions to cover their expenses. If you too are looking for SME finance in India for your organisation, here is a list of things that you should know.
Throughout the world, it’s the SMEs that drive the economy of a nation. As per the 4th MSME Census, in India, SMEs contribute about 8.5% to the GDP (Gross Domestic Product), 42% to the total exports and about 45% to the total manufactured output. A total of about 30 million SMEs in India manufacture more than 800 products and have a workforce of more than 70 million.
For any organisation, it is critical to have a regular flow of money to keep up with their expenses. As a result, a large number of SMEs take SME loans from financial institutions and banks. While the low-interest rates and fast approval process were two of the most important factors due to which SMEs preferred banks over other financial institutions for a loan, the interest rates offered by other agencies have substantially reduced and are now on par with the banks.
Moreover, the repayment period of SME finance in India from banks is usually shorter as compared to other financial institutions and getting a loan approved in the bank is an uphill task. As a matter of fact, banks only approve a little above 20% of SME loan applications. As a result, other financial institutions are now preferred by SMEs over conventional banks for a business loan.
If you are looking for SME finance, these are some of the most important things that you should know-
Be Careful of the Headline Interest Rates
Financial institutions know that there is an increasing demand for business loans in India. Thus, to attract SMEs, many of the financial institutions design eye-catching offers with minimum interest rates. However, these headline interest rates usually don’t tell the entire story. There is a possibility that there can be hidden charges and the loan which is looking rather tempting at the moment might not be the actual fit for your business needs. Thus, it is imperative to make sure that you don’t get lured to SME finance by just the headline figures.
Honesty is the Best Policy
While we have heard this adage a thousand times, it turns out to be of utmost importance when it comes to taking SME loan. While applying for SME loan, it is highly recommended that you should be as honest about the finances of your organisation as possible. The financial institutions will most likely go through your credit rating, and hiding things from them can make you lose a good opportunity.
Take Advice from an Expert
While the management of an organisation prefers taking many decisions based on their knowledge and experience, taking a business loan should not be one of them. As a matter of fact, taking advice from the experts at such moments can, in fact, help you get the type of loan that your business needs.
With the increasing competition, it can be tough for companies to keep up with their expenses without getting any financial help. SME finance in India is at a reframing stage in India and government too is making amendments in their policies to make things easier for these economy-driving organisations. With due diligence, SMEs can easily find business loans that perfectly suit their operational requirements and can help them keep up with the competition.