Understanding Different Types of SME Loan Available in India

To run a business, we need a free flow of cash, which is availed by taking advantage of various schemes available in the market. If your business comes under SME or Small and Medium enterprises, you get many options for loans. You can do thorough research and decide which SME loans are the best for you. But before that, let’s know what Small and Medium enterprise (SME) loans mean.


What are SME loans?

Loans granted to small and medium enterprises are called SME loans. There are a variety of SME loans. Following are the list of various kinds of SME loans:

Term loans:

If you are running a business, you will always need a free flow of funds. How do you get these funds? There are various business loans options, but these are the two ways to get the funds you need. Short-term loans are outstanding if you need quick cash to keep your working capital in a good state. Short-term loans usually have a high-interest rate, but you can avail of them in less time than long-term loans. Long-term loans are outstanding if you need a significant investment in the business. For instance, you want to buy machinery, raw materials, pay your employees, and so on. They may even charge a lower rate of interest.

Loans that are secured and unsecured:

You can avail of a secured loan by mortgaging your assets and getting a loan in its place. A secured loan has a lesser interest rate as compared to unsecured loans. But it would help if you had something to keep as collateral for the funds. These loans are outstanding if you don’t wish to pay much interest rate. You can mortgage your shares, gold, property, or any other asset related to your business for funds in your account. After you pay back your loans, you can get back your investments.

Cash credit:

To get business loans from banks, NBFCs, or other financial institutions, the business person needs to pledge their assets, such as raw materials, machinery, or business property. They get loans on the pledged assets. These are short-term credits given by the banks, NBFCs, or financial institutions to the business. They can also keep collateral and get long-term credit. But if you are looking for quick cash, then short-term loans are recommended.

Point of sales:

This is a short-term SME loan available to the business person. Based on the number of credit card swipes, they are given POS loans. These loans can also be available by promoting cashless transactions.

MUDRA loan:

Pradhan Mantri mudra yojana or PMMY are loans available for SME owners so that there is an easy cash flow in their account, and if they wish, they can use this business loan to grow their business. PMMY helps them grow by lending them loans and helping them expand their business. These loans are given under three names Sishu, Kishore, and Tarun, with Rs.50,000, Rs.5,00,000, and Rs.10,00,000, respectively.

The bottom line:

Do good research on which loan is the best for you and select suitable loans. If your business falls under SME loans, you can take the benefits available for you. To check out more, head to Finserv MARKETS.

Amanda R. Dubose

Spent high school summers getting to know dogmas in Minneapolis, MN. Spent several years merchandising walnuts worldwide. My current pet project is researching Slinkies in Jacksonville, FL. Spoke at an international conference about testing the market for action figures in Hanford, CA. Spent the better part of the 90's lecturing about cellos in Orlando, FL. Spent 2001-2007 building sausage in Naples, FL. Tv fanatic. Internetaholic. Travel expert. Incurable zombie nerd. Coffee advocate. Hardcore web trailblazer. Gamer.