SME Financing: A Variety Of Options Available To Suit Your Needs

SME Financing: A Variety Of Options Available To Suit Your Needs

Survive – Adapt – Thrive. 

No enterprise has ever tasted success in one day. It’s a rigorous process of first surviving the competition, then adapting to the market dynamics, and finally thriving by scaling continually. 

What are the key ingredients of success? 

Per the business doyens, it’s always a sound organisational structure and savvy financial management that leads any enterprise to the pinnacle. 

However, fruitful financial management can be tricky for small and medium enterprises, mainly because of the large number of SME financing options available in India.

Types Of SME Financing Options

Medium and small enterprises are the cornerstone of any nation’s economy. Not only they drive production and exports, but also generate employment. 

And its significance reflects in the various government initiatives for SMEs. Here are a few Central government-sponsored SME financing schemes – 

  I. MSME Business Loan In 59 minutes

GOI introduced the MSME business loan in 59 minutes scheme in 2018. Contrary to popular notion, however, a person cannot avail funds within an hour. 

It’s the time required for the loan to get sanctioned. The disbursal process takes somewhere around 8 – 10 business days. 

The interest rate on this loan has not been exclusively spelt out by any of the five authorised financial institutions. But it depends on the enterprise’s eligibility and credit rating. 

You’d need several documents to apply for this SME financing option, including GSTR, ITR, ownership documents, etc. 

  II. Credit Guarantee Fund Trust For Small And Micro Enterprises

This facility lets new and existing enterprises to acquire a loan up to Rs. 10 lakh against no collateral. The maximum loan amount one can avail under the CGTSME is Rs. 1 crore. However, one would need to present an asset like land or building linked with the enterprise as collateral if the amount exceeds Rs. 10 lakh.

  III. Credit Linked Capital Subsidy Scheme For Technology Upgradation

Businesses need to continually upgrade their technologies used to keep up with an ever-evolving market. The CLSS scheme allows small and medium enterprises to do the same cost-effectively. 

Through the scheme, eligible borrowers can avail capital subsidy up to 15% on costs involved with technology upgradation. However, the maximum subsidy amount is set at Rs. 15 lakh.

Besides these government schemes, companies can also secure SME financing from banks and other financial institutions for their short- and long-term requirements. These are – 

  i. Term Loans

Banks and NBFCs offer term loans with tenure ranging up to 5 years or 60 months. These generally do not involve any collateral, and funds acquirable can go up to Rs. 50 lakh. 

Financiers generally extend this loan to help businesses meet their capital expenditures, like purchasing an asset, expansion, etc. 

  ii. Revenue-Based Financing

It’s a popular financing option for SMEs looking to secure funds for growth and expansion. Revenue-based financing lets businesses avail funds against their revenue projections.

The amount a company can avail depends on its monthly or annual recurring turnover. Hence, enterprises can scale credit as per their growth prospects and deftly capitalise on the objectives. 

Moreover, with financiers like KredX, you can enjoy several benefits like fast disbursal and 100% digitalised process.  

  iii. Working Capital Loan

It is a short-term financing solution that businesses take out to address their working capital requirements. The repayment tenure usually ranges up to 1 year or 12 months. 

Akin to a term loan, banks and NBFCs offering a working capital loan does not require collateral to extend funds. For that reason, the cost of borrowing can be a tad high. 

  iv. Invoice Discounting

Invoice discounting lets SMEs leverage their unsettled bills to acquire credit. It’s one of the more sought-after SME financing options, as businesses can use it to streamline their cash flow. 

This financing option is particularly advantageous to a budding enterprise because it can extend credit to clients for periods up to 90 days without worrying. Once invoices are approved, companies can submit it to the financier’s portal to avail funds against their value. 

Cash flow solution providers such as KredX provides working capital within 24 – 72 hours*, ensuring SMEs can meet all emergency requirements on time.

  v. Asset-Based Financing

SMEs often struggle to acquire external credit due to a lack of sufficient reports on their financial health and absence of or low credit rating. Businesses can opt for asset-based financing in that regard. 

With this buffet of financing options available, SMEs can easily meet their funding requirements and streamline operations effectively.

Bottom Line

When it comes to SME financing, there are several options that businesses can access. But, that also calls for greater financial prudence. You should employ considerable thought into the financing facility you want to go with. Several parameters ought to guide your decision in this regard, including the amount, time horizon, ease of availability, and time required for disbursal.