A successful entrepreneur must invest some money before he can start earning income. One entrepreneur’s source of funding might be different from another’s. Some people can borrow money from their relatives, close friends, or relatives. However, others may want to consider banks or NBFCs that may be able to lend them money.
In case you are a young entrepreneur who is looking to get SME loans, keep reading to find some useful tips that would make your job easier.
What is an SME Loan?
SME loans are loans designed to meet the financial needs of Small and Medium Enterprises (SMEs). Small and Medium Enterprises Loans are commercial loans that are only given to small and medium businesses. These loans are typically collateral-free and are specifically designed to meet the needs and requirements of SMEs.
If you are looking for small business loans, the lender will look at your past business operations. If your current business has been operating for at least 2-3 years and you have been in the industry for at least 5 years then it would be an easy sanction. In case you have better business management experience then you can also avail of lower interest rates on your loan. The terms and conditions of these loans may vary according to the lender.
10 Tips for Young Entrepreneurs to get SME Loans:
Starting a business and being an entrepreneur is challenging, especially for young people. The difficulties that start-ups face include expanding the business, reaching out to the market, assembling the ideal team, and fending off competitors. Young entrepreneurs require financial assistance to realize their ideas and turn them into profitable ventures. Funding is essential for any business to survive and deal with daily challenges. To meet their financial needs, one of their options is to obtain an SME loan. Here are a few useful tips that young entrepreneurs may use while taking a loan.
- Identify the purpose: Before applying for a loan, consider how the funds will be used for your business. Planning out the costs and the timing of financing should be done carefully. In most cases, lenders provide working capital loans to cover a variety of business requirements, including regular operating costs.
- Maintain your CBIL score: Your CIBIL score is crucial to determine your capacity to repay. When evaluating your loan application, some lenders will even look at your own credit score. To improve your CIBIL score you can pay off your current debt on time and avoid using all your credit.
- Look for unsecured loans: SME loans are generally not secured by real estate or any other assets. Therefore, you are not required to provide any security for the loan to get approved. This is because their goal is to assist small businesses in increasing their output.
- Documentation: It’s important to take note of all the documents needed to submit to the lender for a loan application. The required papers for a typical loan application process fall into categories such as KYC, Aadhar, PAN, and license.
- Restrict loan requirements: The most effective advice for repaying your loan is to cap your requirements. People naturally tend to borrow more money when taking out a loan. Hence, it is essential that you repay the loan quickly and with interest. You should borrow money that is absolutely necessary.
- Compare types of loans: Before submitting an application for an SME loan, you should always thoroughly research the requirements. You can also look into the government’s SME loan programs, such as the PMMY and PMS. Choose the type of loan based on your ability to repay. Before making any commitments, consult an accountant.
- Check eligibility requirements: Entrepreneurs must check their loan eligibility before making any application. This will protect your credibility from being damaged by too many loan inquiries in a short period of time. Even if the loan is approved, the applicant’s credit score might be negatively impacted by a series of credit inquiries.Numerous factors, such as the number of loan accounts, late or defaulted EMI payments, financial history, and regularity of spending have an impact on credit scores.
- Have a plan: Repayment is an important stage of a loan cycle. It is essential to develop and follow a repayment plan. Having a clear understanding of ongoing expenses will keep your business finances in place.
- Be ready with a bank statement: A bank statement is necessary to confirm that the applicant is entitled to profits. The lender will also receive confirmation of the applicant’s income via a bank statement. This makes it simpler for them to determine the loan amount and term based on the applicant’s income.
- Maintain good relationships: If you are successful in obtaining a loan from any lender, you should keep in touch with them. Your lender’s assistance and guidance may be required in the future. Maintaining a good relationship with your lender may also allow you to receive additional loan benefits.
The bottom line
Money is the most important factor for any business, whether it is a start-up or a large multinational corporation. Typically, start-ups go through several rounds of funding, with each level securing enough money to advance to the next. However, the majority of startups continue to operate with inadequate funding. This is why so many young entrepreneurs seek an SME loan. You can make the loan process much easier for young entrepreneurs by following the tips above.
If in doubt, consider consulting an institution like Piramal Finance. Check out the SME loans that they offer. Their experts can help you know the eligibility criteria, and loan requirements, give you repayment options, and help you choose the most suited loan type for your business.