When we plan to develop an IMM business, or an SME, we have to acquire the necessary knowledge regarding the ways to obtain credits as accessible as possible. Every banking or money market operation must comply with certain rules that condition the smooth flow of money. In India there are almost 45 foreign banks that develop banking operations, and they operate through branch models. The government nationalised many of the commercial banks in India and wanted to merge various public sector banks, trying to strengthen the balance sheets and to reduce the government stakes, from the public sector. Until now we can find in India an estimated of 26 million micro and small enterprises (MSEs), that provide employment to an almost 60 million people.CGMSE (The Credit Fund Scheme for Micro and Small Enterprises) was released by the Government of India, in order to make available collateral-free credit to the micro and small enterprise sector.
What is an SME?
SMEs also known as Small and Medium Size Enterprises are businesses that maintain assets, revenues, and employees. SMEs contribute to a major part of the economy in most of the countries. In India, SMEs are vibrant sectors have emerged to contribute to the economy in leaps and bounds. They also provide a great deal of employment opportunity resulting in a substantial distribution of wealth and National income. They contribute to the Nation’s developement in terms of production, requirement, and earning. In SMEs, the investment in machineries, plants and equipments will genertally be below INR 25 Lakhs in India.
How to obtain a safe loan for a SME?
In order to obtain a credit or loan from credit institutions in India, SMEs have to follow a short list of procedures, well determined. First of all, the credit institutions establish the eligibility of the companies or firms, that apply for loans, in order to make proper selections, based on the data from the finance sector.The applicant has to comply to banking and government rules.Banks and NBFCs provide different types of loans for SMEs and for various purposes.
List of documents needed for collateral-free loans
There are multiple institutions and corporations that will encourage people to profit from collateral-free loans. For example National Small Industries Corporation (NSIC) and the State oriented Financial Corporations require a set of documents for each transaction.List of documents that entrepreneurs will have to prepare in order to obtain a loan: –
- proof of ownership, for own properties
- special report on the availability of buildings and land, when we buy the property with bank intervention
- proof of residence , this document shows the residential status of the borrower
- individual IT returns for 3 years, for the companies that run businesses for more than one year, followed by statement of income with tax liabilities and other sources
- provisional Balance Sheet, the financial document that certifies monetary situation of the company
- recent Financial Statements of the firm
- a list of owners/shareholders
- a stamped copy of memorandum of association
- photographs of owners/shareholders/partners
- sales tax/GST related documents
The process of applying for an SME loan
When applying for an SME loan each entrepreneur must complete an application form as follows, for a bank or NBFC, with the information: –
- Name of the company-
- Date of firm creation-
- Address of the firm-
- Operating address of firm-
- Contact details-
- Sector/Industry code-
- Permanent account number-
- GST, No.
For the process of SME loan, banks and NBFCs request an interest rate that depend of the size of the loan and the provisions.
Loan options for SMEs Most of the SMEs from India can choose between different loan options:-
- working capital loans, for operational firms, available on working capital loans that concentrate on expenses
- term loans, configured for certain purposes, for the long term expenses; the available duration for returning payment for these loans is from 5-15 years
- equipment financing, designed for modern equipment with new competition standards the equipment is usually financed by certain banks and NBFCs
- Pradhan Mantri Mudra Yojana ( PMAY), it is scheme designed to serve SMEs and MSMEs, divided in 3 loan categories: Sishu Loans up to Rs. 50,000, Kishor Loans from 50,000 up to Rs. 5,00,000 and Tarun Loans from 5,00,000 up to Rs. 10,00,000.
Banks in India that provide loans
In India there are a number of 91 commercial banks that operate credit and loans. From the 91 banks, we can number 20 in the Public Sector, with SBI, and other 19 nationalized banks.Like in most of the countries the Central bank of India, called the Reserve Bank of India (RBI), governs the regulations of all the other banks.
Loan Providers in India:In India we can also find a small list of banks and NBFCs that provide sme loans for SMEs: Axis Bank, Bajaj Finserv, Bank of Baroda, HDFC Bank, ICICI Bank, IDBI Bank, Indifi Finance, Kotak Mahindra, Lendinkart Finance, PNB Bank, SBI Bank, Small Industries, Development Bank of India (SIDBI), Union Bank of India, Yes Bank.
Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
Micro and Small Enterprises can apply for bank credits at CGTMSE.
The Ministry of Micro, Small & Medium Enterprises (MSME) and the Government of India launched Credit Guarantee Scheme (CGS), in order to build a stronger credit delivery system, and ease the credit and cash flow to the MSE sector.
(CGTMSE), the Credit Guarantee Fund Trust for Micro and Small Enterprises became operational, thanks to the intervention of the Government of India, with the purpose of financing the SMEs.
The CGTMSE has introduced a new “Hybrid Security” product that allows collateral coverage for the portion of the credit facility that is not covered by collateral security.
The scope is that the finance institution will allow more importance to the project perspective, while securing the loans.
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