Choosing the Right SME Finance Company: 5 Handy Tips

The Small and Medium Enterprises (SME) sector in India has charted a distinct growth trajectory so far. With a noteworthy contribution of 45% to the country’s GDP, one can expect it to play a significant role in India becoming $3.5 trillion economy by 2020. Offering large-scale employment to a sizeable section of the country’s population is the second significant contribution of the SME sector to the nation’s economy.

Pitted against large enterprises, small and medium enterprises have had to face several obstacles to come thus far. Stringent legal policies, lack of adequate and timely finance, complex taxation laws and low adoption of technology are the chief impediments SMEs continue to struggle with today. On the positive side, one can clearly see a slow but certain transition in the ease of doing business in India. Realizing entrepreneurial dreams has become relatively easy in the current scenario courtesy recent reforms in the BFSI industry. Of these, the availability of convenient SME finance offers entrepreneurs the opportunity to realize even the most ambitious of business goals.

It’s All About Timing

Not only do SMEs need generous monetary aid—they need it in time. Timely infusion of funds ensures they seize the next big business opportunity. An enterprise needs to be smart and realize that quick and convenient SME finance is closer, now, than one can imagine. Thanks to a rapidly maturing alternative finance market, a host of companies provide small business loans in India in an easy-to-access manner. In fact, the SME lending landscape is changing even as you read this. Fintech institutions are redefining the way small entrepreneurs seek financial help, by simplifying the process and speed of loan disbursal like never before.

Keep the following tips in mind while choosing your small business loan to make the most of the funding opportunities opening up for SMEs.

1. Ease of Loan Application

One of the key things to consider while choosing an SME finance partner for your business is the ease with which you can apply for a loan. As compared to conventional SME lending by PSUs, private banks, traditional NBFCs or unregulated money lenders who offer slow loan disbursals, a smart fintech outfit should be able to plug in the resources you require in three days. This is extremely critical in the current competitive scenario. High liquidity remains a crucial factor in deciding the fate of a new or existing business. Convenience of applying for a loan anywhere and anytime and hassle-free documentation are essential pointers in checking for the suitability of an alternative finance institution.

2. SME-Friendly Credit Terms

Much to an entrepreneur’s dismay, offering a collateral against SME lending was the norm till now. Thanks to friendly SME finance companies, business goals can now be pursued without having assets or pledging collateral, and without worrying about conceding existing assets. Collateral-free/unsecured business loans are a click away; you only need to pick one that best suits your needs.

Additionally, traditional banks do not even consider businesses as loan-worthy if they are less than 3-5 years old. Opt for an SME finance company that is relatively open in terms of minimum years in business, and towards ‘new-age’ businesses.

3. Affordability Matters

Applying for a small business loan in India is a daunting task, especially when it comes to conventional moneylenders. Often, SME lending comes at a hefty price tag. No flexibility in terms of loan tenure, crippling pre-closure penalties, stringent repayment options, high interest rates, heavy processing fees, hidden charges, and many other prerequisites make traditional loans in India out of reach for many small businesses.

Having said that, a savvy entrepreneur could choose a new-age SME finance product that is easy on your pocket and does not give you sleepless nights. Affordable small business loans that are customized to your financial needs and are a best fit for your business plans are the ones to look out for—there are a host of emerging small finance options for smart startups.

4. Variety of Loans and Repayment Options

SME finance products are not a one-size-fits-all option. The loan option that suits one business may be irrelevant for another. Hence, SME business loans need to offer multiple options and be easily moldable to meet specific working capital needs. With working capital finance being critical for SMEs, entrepreneurs should opt for flexible and short-term loans that are most suitable to their business need. Most loans offered by formal financiers come with stringent do’s and don’ts such as monthly EMIs, pre-closure charges, etc. SME finance procured from fintech financiers offers a welcome contrast in terms of flexible payment options and much more. Such small business loans come in handy for cashing in on emerging business opportunities, fast-tracking growth and boosting profit margins by quickly scaling production to meet seasonal demand.

5. Best fit with Long Term Plans

While short-term investments seem doable and promise quicker returns, one of the common mistakes an SME makes is not planning for the long term. An important tip while choosing an SME finance company is to have a clear roadmap with a long-term business goal. Your business will work better and last longer when you have your strategy in place. It also helps you to choose the SME finance product, which is the best fit for your needs.

The lending market is growing exponentially courtesy the fast expansion of the SME sector. Whether you are a B2B service provider, manufacturer, trader or distributor, the demand for working capital will never diminish. Do not let a cash crunch or exorbitant rates of interest pin your business down. If you pick your loan wisely, you will head towards growth and stability. Consistent quality and uninterrupted supply are key to any successful business. These are achieved with working capital finance.

There has never been a better time to look for an SME finance partner that ensures timely, easy access to cash.