How to get SME Loan from Bank?

How to get SME Loan from Bank?

65
0
Print Friendly, PDF & Email
How to get SME Loan from Bank?
How to get SME Loan from Bank?

INTRODUCTION

Now before starting the article, would like to throw some light on “what is SME loan”? SME Loan means “small and medium sized enterprises”. One definition is given by European Union is that “SME is an independent company with not more than 500 employes.SME types of company falls between small office and home office to large  enterprise. It is borrowed from bank to open a small or medium-sized enterprise. For instance, if a person is willing to open a general store then he can take loan and i.e. SME Loan from the bank. And bank after considering the requirements, scanning the documents will provide the loan.

 WHAT PURPOSE IS TO BE FULFILLED BY TAKING SME LOAN?

The main ambition of SME Loan is that it helps the small enterprise to stand in all difficulties and it provides funds to these medium sized enterprises.

  • It helps the business and enterprises to meet their expectations regarding businesses.
  • It helps in regaining the losses incurred in the businesses.
  •  It includes various things like repairing of the warehousing, payment to the employees, launching of the new products, and expansion of the business.
  • It provides both security and interest rate to the entrepreneurs
  • It is the easiest and profitable as SME Loan only aims at providing funds to the small and medium sized enterprises.
  • It helps in the credit flow in the small to medium sized enterprises.

WHO CAN AVAIL IT?

As the name itself suggests that SME Loan is only targeted to small and medium sized enterprises. Now there are three types of classification and that are:

1. MICRO ENTERPRISES

2. SMALL ENTERPRISES

3. MEDIUM ENTERPRISES

MICRO ENTERPRISES – It is  a small enterprises comprising fewer number of employees. Mostly these types of businesses are family oriented business. There is small amount of investment or capital involved in establishing the enterprise. It ranges upto 25 lakhs if it involves manufacturing process and upto 10 lakhs if it is a service sector. 

SMALL ENTERPRISES – These are the business which embodies 25 to 500 lakhs investment in manufacturing plant and machinery and upto 10 to 200 lakhs for service sector.

MEDIUM ENTERPRISE – In this type of business in plant and machinery where manufacturing process takes place ranges between 500 lakhs to 1000 lakhs. Then in service sector it lies in between 200 to500 lakhs.

 WHO ARE ELIGIBLE FOR SME LOAN?

The following entities are eligible to avail SME loan:-

  • Private Limited Companies
  • Proprietorships Firms
  • Partnership Firms
  • Public limited companies
  • Manufacturing , trading and service units
  • The firms must have made profit in the last 2 years
  • The firm must be defined under MSMED and Reserve Bank of India.

HOW TO GET LOAN?

DOCUMENTS REQUIRED

 There are various documents which will help you out to approve loan. There are two kinds of documents :

  1. Normal Document Structure – In this general information document is needed.
  2. Financial Documents
  3. Facility Specific Document – In this all the information related to the SME loan will be mentioned.

1. NORMAL DOCUMENT

This part will tell us about normal or general documents which is required by every bank, when entities are applying for SME loan. This includes:-

  1.  The Application Form and they need to fill all the essential and important details in that form.
  2. Attested copy of KYC (know your customer). In this all the photocopies are required which tell about the person ‘ age, caste, gender etc.
  3. Entity proof. He have to either submit partnership deed or a certificate of incorporation which will give the proof of person resident address. It also clarify the legal existence of a person.
  4. PAN Card and Address proof.

2. FINANCIAL DOCUMENTS

 These documents will give the whereabouts of the enterprises. It will build a transparency between a enterprise. Under this, following documents are needed:

1. All the previous 3 year audit which comprises of balance sheet, profit and loss sheet etc. It is required so that banks keep a check on the enterprise

2. Another document which is required is that current year performance report. The objective behind it is that banks want to know whether they are capable of returning the loan.

3. Last one year income tax returns of the borrowing entity.

4. Documents including bank statements for the last six months s. This documents is required if the borrowing is for the first time and for 12 months. This is to make sure that it is a legal entity. And there is not any misrepresentation. A bank will only give SME loan if there is a gap of 12 months (i.e. the enterprise is 12 months old) between the borrowing of first one and the second one.

3. FACILITY SPECIFIC DOCUMENT

These are type of documents are required when entity wants to derived some special facility out of the funds.

  • The contract agreements of the letters of intent
  • Last three inland letter of credit transaction
  • The project report
  • Government approval
  • Performances invoices and a copy of allotment letter and a architectural certificate.

WHAT DO BANKS CONSIDERED BEFORE GIVING SME LOAN?

  1. Banks look after the entity’s Credit rating, Financial standing, Bank relationship, Management guarantees, Collateral, Low earnings.
  2. The application form must be simple, easy to understand and standardized.
  3. Working capital limits to SME manufacturing units is based on the minimum of 20% of its projected turnover
  4. The application form must be acknowledged in writing
  5. The credit rating system’s parameter is to be shared with the borrower.
  6. Collateral must not be insisted for credit up to Rs.10 lakh

CONCLUSION

Now if you want SME loan, don’t forget to attach the attested documents, all the General and Financial Documents. And if there is necessity of the Specific Facility then you can add that too.

To get MSME registration click here.

OUR SERVICES

Company Registration I Trademark I Copyright I Patent I GST I MSME

 ISO Certification I Website/App Policy I Legal Documentation

Annual Compliance I Connect Consultant

Visit: Aapka Consultant to get Online Services of CA CS & Lawyers

NO COMMENTS

LEAVE A REPLY