Types of Loans Available for SMEs and MSMEs in India

Types of Loans Available for SMEs and MSMEs in India

- in Finance
Comments Off on Types of Loans Available for SMEs and MSMEs in India

Image result for Loans Available


The Small and Medium Enterprises (SMEs) and Micro, Small and Medium Enterprises (MSMEs) are the backbone of the Indian economy. They provide job opportunities to individuals across the country and also contribute to the exports of the country to a great extent.

Numerous finance options have been made available by private and public institutions to the SMEs and MSMEs in order to provide an impetus to their growth. By obtaining adequate funds, this sector can improve the output and bring about growth and development of the economy.

Following are thefive types of loans available to the SMEs and MSMEs in the country.

  1. Term finance

As the name suggests, term loans refer to finance that has to be repaid over a set period of time, along with certain interest. Banks and Non-Banking Financial Companies (NBFCs) may either charge a fixed or a floating interest rate on such loans. Term loans may be used to fund numerous business-related activities such as purchase of plant and machinery,construction activities, and expansion, besides many others.

  1. Merchant cash advance

Merchant cash advance is one of the simplest and user-friendly funding solutions for businesses. It is a financing option wherein a merchant account provider gives a one-time lump sum to the merchant in exchange of a certain percentage of future credit sales. Such a financing option provides businesses quick access to cash.

  1. Supply chain finance

A company’s supply chain includes various entities such as suppliers, distributors, and retailers, among others. Enterprises have to pay suppliers for raw materials and other products. However, they may receive delayed payment from distributors and retailers. Such a delay in payment has a huge impact on the growth of the business. To ensure that SMEs and MSMEs receive atimely inflow of cash, various financial institutions provide supply chain finance solutions.

  1. Startup loans

Banks and NBFCs offer SME and MSME loans to those seeking to establish a new business venture. The received capital may be used to purchase land, construct an office space, purchase computer systems, buy raw materials, and for research and development purposes, besides many others. SME and MSME business owners may avail of such loans and set up their business without any financial constraints.

  1. Equipment loans

Plant and machinery is an important contributor to the overall output of the business. The cost of purchasing equipment is high. To help business owners purchase machinery and other equipment without any difficulties, financial institutions offer MSME and SME loans. Such loans may be obtained at competitive interest rates along with attractive terms such as quick loan approval, minimal documentation, flexible repayment schemes, and extended loan tenure, besides many others.

With the advent of digitalization, the demand for online loan has increased to a great extent. Most banks and NBFCs now provide an online lending platform so that businesses may enjoy the convenience and flexibility to borrow through the Internet. SME and MSME business owners may seek loan-related information online, and even apply for the loan through the lender’s website.

With numerous types of small business loans available in India, SMEs and MSMEs may grow and develop. Timely availability of finance will help them deal with competition effectively, thereby contributing to the growth of India’s economy.