Why Taking an SME Finance Makes More Sense than Liquidating Your Savings?

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No matter what your business forte is, arranging for the initial capital becomes one of the key determinants towards success. While some pour their hard-earned savings in enabling the business to take off, others utilise an SME finance and make their venture successful.

Many refrain from taking such a loan because they don’t want to go through the burden or stress involved in it. Using their savings, they seek to eliminate the need for going through the process involved in taking a loan.

Further, one also gets to avoid interest rates, timely EMI repayment, and additional charges that come with cheque bounces or delayed payments.

However, utilising all savings and having nothing for the future is not a move that experts recommend. In case of a funding crisis, one will get limited options for availing additional investment.

Few of the reasons why an SME loan can be a better option for a business are discussed below:

  1. Attractive interest rates

Banks and NBFCs provide SME finance with attractive interest rates making them an easy financing option. Thus, borrowers get the option to repay the loans without allowing it to become a burden.

  1. No collateral required

SME loans are collateral-free, and hence, banks and NBFCs don’t require a borrower to pledge an asset with them. Loan applicants get the freedom to utilise their personal or professional assets without needing to put them on the line.

  1. Minimal documentation

One can avail SME finance by furnishing minimal documents like KYC documents, certificate and documents as proof of business, bank account statements, and other relevant financial documents.

  1. Minimal eligibility

For availing SME loans without collateral, one has to be between the ages of 25 and 55 years. The business should have a vintage of at least 3 years which ensures it has credibility and the finances to repay the loan in due time.

Applicants also have to file income tax returns for at least a year. They also need to audit their business turnover for the previous year by a CA.

  1. Flexible tenures

Banks and NBFCs provide flexible loan tenures ranging from 12 to 60 months. Borrowers get ample repayment time and plan their loan repayment accordingly.

  1. Tax benefits

Interest paid on a business loan is tax deductible from the gross income of the company. Experts advise borrowers to compare the interest rates before opting for SME finance. The principal amount of the loan is, however, not tax deductible.

  1. Quick processing

Most financial institutions enable customers to apply for SME loans online. Further, renowned lenders like Bajaj Finserv process the loan within 24 hours and disburse it to the customer’s account.

  1. Improve credit score

Availing an SME loan is a superior way to improve one’s credit rating. Being unsecured and with short tenures, the loans can increase the credit score when handled responsibly.

Additionally, before applying for a SME loan, you must set up a proper financial plan and revenue projections. This will help in creating a profitable profile for your business, thereby strengthening chances of loan sanction.

When to avail?

Some of the situations when one can avail SME loans include:

  1. Bridging receivable delays

Customers may delay their payment even after providing them with a line of credit. However, the business will still require funding for operating, and a loan, in this case, can bridge the funding gap created by delayed payments.

2. Debt consolidation

When debt piles up, seeking an additional source of funding is the only way to consolidate them. Vendors may reduce their line of credit or stop doing business with the company altogether if payments are delayed.

3. Business expansion 

Expanding to a new location, buying new equipment, or any other business expansion needs can be addressed by SME loans.

If the borrower pays off all EMIs within due date, it will positively be reflected in his/her credit history. With a good credit history and score, a borrower can approach a lender for other unsecured loans in the future.

With SME loans India, one gets to run the business operations smoothly and earn interest on their savings simultaneously. Investing the savings in a fixed-deposit or any high-interest yielding scheme can prove more beneficial.

If invested wisely, you can earn more than what you have to pay with SME finance.

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