Small and medium enterprises are critical for the country’s economic and social development. SME is the biggest employment provider next to agriculture. The SME plays a major role in creating jobs and generating income for the low income group. SME fosters economic growth, social stability and contributes to the development of the private sector.
Objective of SME Loan Policy
The SME loan policy has been framed keeping in mind the following objectives:
- To improve credit flow to SME sector.
- To formulate norms to SME sector to ensure that the adequate and timely credit is available to the sector.
- The SME Loan policy also provides guidelines to the branches offering credit to the SME sector and to formulate norms of lending to the SME sector.
- To devise an organisational structure to handle SME credit portfolio in a focused manner.
Scope of SME Loan policy
The policy will cover the following:
- Composition of the SME sector
- Guidelines on lending to the SME sector
- SME loan factory model
- Policy on credit rating and pricing
- Identifying thrust industries
- Discretionary lending powers
- Training needs
- Reporting and monitoring system
Classification of SME Segment
SME Segment consists of the following:
Micro Enterprises
If it is a manufacturing enterprise, it will have up to Rs.25 lakh invested in plants and machineries. If it is a service sector enterprise, then up to Rs.10 lakh will be invested in equipment.
Small Enterprises
If it is a manufacturing enterprise, it will have above Rs.25 lakh and up to Rs.500 lakh invested in plants and machineries. If it is a service sector enterprise, then above Rs.10 lakh and up to Rs.200 lakh will be invested in equipment.
Medium Enterprises
If it is a manufacturing enterprise, it will have above Rs.500 lakh and up to Rs.1,000 lakh invested in plants and machineries. If it is a service sector enterprise, then above Rs.200 lakh and up to Rs.500 lakh will be invested in equipment.
Target for SME Sector lending
Banks are advised to fix their own targets to achieve the 20% yearly growth in credit to the SME sector. Banks are advised to ensure that 60% of the total advances to small enterprises must go to micro enterprises.
40% must got to micro manufacturing enterprises who have up to Rs.5 lakh invested in plant and machinery and micro service enterprises that have up to Rs.2 lakh invested in equipment.
20% must got to micro manufacturing enterprises who have above Rs.5 lakh and up to Rs.25 lakh invested in plant and machinery and micro service enterprises that have above Rs.2 lakh and up to Rs.10 lakh invested in equipment.
SME Finance for New Business
SME loan is offered to finance a new business as well. The main reason why most small and medium enterprises shut down is that they don’t receive financial assistance at the need of hour and they won’t have working capital or any funds to buy plants and machinery to function.
SME Loan Eligibility Criteria
The following entities are eligible to avail SME loan:
- Sole proprietorship firms
- Partnership firms
- Private limited companies
- Public limited companies
- Manufacturing, trading and service units
- The firms must have made profits in the last two years
- The firms must be defined under MSMED Act and by Reserve Bank of India.
SME Finance Procedure
The following procedure must be followed by the borrower:
- Fill up the SME Loan application form and submit it with the bank.
- Submit all the documents required to the bank as well.
- Get the loan sanctioned and service it on time.
Documents required for SME Loan
The documents required are as follows:
- Certified copy of Memorandum and Articles of Association or certificate of incorporation or certificate of commencement of the business as the case may be.
- Audited last 3 years’ financial statement of the unit and of the associate concerns, if any.
- Present shareholders list.
- List of directors or partners.
- IT or wealth tax assessment order or returns for the last 3 years.
- Last three year’s sales tax return and assessment order.
- Copy of ration card, passport, voter ID of promoters, directors or guarantors.
- Photographs of promoters, directors or guarantors.
- Bio-data and net worth statement of promoters, directors or guarantors.
- Title documents of land and building on which the unit is being operated.
- Government order to convert land to industrial land.
- Site map of the land and the building plan.
- Estimate of the building by the architect.
- Quotations from machine suppliers for the plant and machinery.
- Write up about marketing.
- Copies of sanction letter for present credit facilities must be provided.
- SSI registration certificate.
- NOC from pollution department.
- Power sanctioned and installed.
- Detailed project report.
- Details of technical personnel’s and key managers.
- Manufacturing process and its flow chart.
- Sale or lease deed copy of collateral securities.
- List of plant and machinery.
- Collaboration agreement, if required.
- Agreement with technical consultants, if any.
Factors the banks must consider while lending to SME Sector
The bank must comply by the following focal points while lending to the SME Sector:
- The application form must be free, easy to understand, simple and standardized.
- The application form must be acknowledged in writing.
- The loan applications are to be disposed of within a stipulated time. Credit limits up to Rs.2 lakh must be disposed within 2 weeks, credit limits up to Rs.5 lakh must be disposed within 4 weeks and credit limit exceeding Rs.5 lakh must be disposed within a reasonable time frame of 4 weeks.
- The loans that are sanctioned must be disbursed within 2 working days.
- If the application is rejected, then a written reason for the rejection should be conveyed to the applicant.
- Collateral must not be insisted for credit up to Rs.10 lakh.
- Working capital limits to SME manufacturing units is based on the minimum of 20% of its projected turnover.
- If loan up to Rs.5 lakh is not sanctioned, then no processing charges to be recovered.
- The credit rating system’s parameter is to be shared with the borrower.
- Prepayment without prepayment charges is allowed for prepayment of loans up to Rs.5 lakh.
- Deposits or third party products are not to be insisted for sanctioning credit.
- To be in regular contact with the borrower and to provide counselling services to help borrower deal with their problems.
Facilities offered to SME Units
Following are the facilities offered to the SME units:
- Term loan or demand loan or deferred payment guarantee
- Working capital through cash credit, overdraft etc.
- Bill purchase or discounting
- Export credit facilities
- Foreign or Inland letter of credit
- Bank guarantees
- Standby letter of credit
SME Finance for Women
Most of the women entrepreneurs are found in the small scale units. These units are managed by one or more women who have stake not less than 51% in the equity. The banks have realised that there are many such units that need help, hence specific products are offered to the women entrepreneurs to meet their working capital requirement, to expand their business, alteration and renovation of hotels, restaurants or lodges or to acquire plant and machinery, etc.
Loan are also provided for establishing catering units for selling tiffin or food or lunch packs. Other loans offered are:
- Loan for beauty parlour
- Loan for day care centre
- SME easy loan to meet the working capital requirement
- Loan against Property
- Shree Shakti package
SME Loan Interest rate
If the loan is provided to the SME category, the rates applicable to Micro, Small and Medium enterprises are to be applied.
The SME loan interest rate starts at 12% per annum. Please check with the bank, the rate they are offering before applying for the loan.
Charges applicable on SME Loan
Following are the applicable charges:
| Processing fee | Up to 1% of the loan amount plus taxes. |
| Renewal fee | Up to 0.50% of the loan amount plus taxes. |
| Commitment charges | Average utilisation of the loan is more than 40% – Nil
Average utilisation of the loan is less than 40% – 0.50% per annum on the difference in the actual amount utilised and average quarterly utilisation of 40%. This charge is applicable for cash credit and overdraft facility. |
| Stamp duty charges | As per the applicable laws |
| Prepayment charges | 2% if loan is prepaid after 6 months from the date the loan was sanctioned.
4% if loan is prepaid within 6 months from the date the loan was sanctioned. |
| Penal interest | 2% additional on existing rate of interest for not submitting insurance or stock statement. |
| ROC filling charges | Rs.3,000 per filing. |
| Issuance of solvency certificate | Rs.10,000 per solvency certificate. |
| Cheque swap charges | Rs.500 |
| Repayment schedule charges | Rs.200 |
| Rebooking charges | Rs.1,000 |
SME Loan application
The borrower will have to fill up the following sections in the SME loan application:
General Details:
- Name of the entity
- Registered address of the entity
- Operating address of the entity
- Date of incorporation
- Name of the contact person
- Telephone and mobile number
- Email address
- Constitution code
- Industry code
- Nature of business
- PAN number
- Sales Tax or Service Tax number
Financial Details:
- Details of bank account and credit facility from banks
- Details of associates and group entities
- Financial information that includes net sales or total income, operating profit, net profit after tax and tangible net worth.
- Credit facilities that you have applied for
- Basis of cash credit limit applied
- Details of machinery if it is a Term Loan
- Security details of the company
Other Details:
- Details of promoters of the entity, which must include name, date of birth, gender, marital status, PAN number, nationality, residential address, contact number, email address, business experience, and shareholding and DIN number.
- Personal details of guarantor. This includes name, date of birth, gender, marital status, PAN number, nationality, residential address, contact number, email address, net worth and relationship with the borrower.
Additional Details:
This section includes the statutory obligations status, such as:
- Registration under Shop and Establishment Act
- Registration under MSME
- Drug License
- Latest Sales Tax Return filed
- Latest ITR filed
- Any other stipulated dues remaining
- You will also have to fill up details of premises held by entity and business details with corporates.
Finally, the application form must be duly signed and the bank will give you the acknowledgement receipt of the loan application.
Banks offering SME Loans
ICICI Bank Offer SME Loans
Following facilities are offered by ICICI Bank:
- Cash credit or overdraft facility to provide working capital finance requirement.
- Export Credit to pre-shipment and post-shipment finance
- Bank guarantees
- Term loans
SBI Bank Offer SME Loans
SBI offers SME Collateral Free Loan to meet working capital requirements and term loans for construction.
IDBI Bank SME Loans
IDBI Bank offers SME Smart Line of Credit and the following facilities are provides:
- Term loan
- Working capital loan, fund and non-fund based.
HDFC Bank Offer SME Loans
The following facilities are offered:
- Working capital finance
- Working capital for contractors
- Term loan
- Loan against assets
- Commercial or construction equipment finance
- Business loan
- Healthcare or medical finance
- Rural loans
- Working capital finance to transporters
- Loans for professionals
- Commercial vehicle finance
- Dealer finance
Axis Bank Offer SME Loans
SME Fast Track loan offers the following facilities:
- Financing non-priority sector entities
- Overdraft against property
- Financing priority sector entities
- Term loan against property
- Lease rent discounting
- Zero collateral loans to SSI units
- Business loans for property
- SmartSwipe Credit Line
PNB Bank Offer SME Loans
The schemes offered are as follows:
- SME Sahayog scheme
- PNB Artisan Credit card
- PNB Laghu Udyami Credit Card
- Scheme for Advances to Small Road Transport Operators
- Scheme for Advances to Owner-Driver of Taxi
- PNB General Credit Card Scheme
- Scheme for Financing of Individual Business Correspondent agents deployed by the Bank for carrying out Financial Inclusion works.
Bank of India Offer SME Loans
The following facilities are offered by Bank of India:
- Star SME Liquid Plus
- Star SME Auto Express
- Contractor Line of Credit
- Star SME Education Plus
- Star SME Term Loan
- Star SME LAghu Udyami Samekit Loan
Bank of Baroda (BOB) Offer SME Loans
Following products are offered to the SME Sector:
- Baroda SME Gold Card
- Baroda SME Loan Pack
- Baroda Overdraft against Land and Building
- Baroda Vidyasthali Loan
- Baroda Arogyadham Loan
- Scheme for financing existing SME Customer or Current Account holder for purchase of new vehicles.
Canara Bank Offer SME Loans
Various schemes are offered for:
- Capital investment
- Working capital
- Composite requirements
- Others
Indian Bank Offer SME Loans
Indian Bank participates in the following schemes:
- Prime Minister’s Employment Generation Programme
- Revival, Reform and Restructuring Package for Handloom Sector
- Weaver’s Credit Card Scheme
- Artisan Credit Card Scheme
- Credit linked Capital Subsidy Scheme for Technology Upgradation of Micro, Small and Medium Enterprises
- Credit Linked Capital Subsidy Scheme for Technology Upgradation Fund Scheme for Textile Units
- CGTMSE
Union Bank of India Offer SME Loans
Union SME Plus is offered to meet:
- Working capital requirement.
- To meet the increase in cost of raw materials.
- Genuine credit to tide over liquidity crunch.
- To realization of book debts.
Tamilnad Mercantile Bank (TMB) Offer SME Loans
MSME Credit scheme is offered to:
- Provide working capital requirement.
- To provide Fund Based and Non-Fund Based Limits to provide credit to Micro, Small and Medium Enterprises.
- Credit Guarantee Fund Scheme for SSI.
Small Industries Development Bank of India (SIDBI) Offer SME Loans
The following are the schemes offered by SIDBI:
- National Equity Fund Scheme
- Technology Development and Modernisation Fund Scheme
- Composite Loan Scheme
- MAhila Udyam Nidhi Scheme
- Scheme for Financing activities relating to marketing
- Equipment Finance Scheme
- Venture Capital Scheme
- ISO 9000 Scheme
- Micro Credit Scheme
