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The Dos And Do Nots Of SME Loans And Finance

The Indian SME sector was one of the most neglected in terms of capital financing until a few years ago. All this time, the enterprises were left to fend for themselves and did better or worse for their use of whatever means of financing were available to them. Although the situation has been improving in recent years, much needs to be done before the sector undergoes a complete financial makeover in its operations and management. The factors responsible for this stagnated growth are largely, the lack of institutional reforms in banks to offer short term small credit to the SMEs and the prevalent reliance on local financing entities (who offer credit at a much higher cost) by the enterprises themselves.

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And then, along came Fintech startups like LendingKart, recognising the huge potential offered by SME Loans and Finance, and developing technological processes that make getting business loans easy. The whole process of applying for an SME loan has been reduced to a couple of documents and a window of 72 hours for approval, no more tedious paperwork filings and waiting days before getting (or not getting) a nod from your bank.

Essentially, Fintech understood the commercial needs of organisations with a smaller footprint. Especially for small and medium businesses where the loans and financing options cannot be limited to a "one size fits all" approach. By offering short term loans of Rs. 50,000 to 1 Crore, NBFCs like LendingKart ensure that SMEs maintain their capital independence and avoid credit traps. Adding to the mix, options like zero foreclosure fees and Flexi EMI payments, Fintech firms have made SME loans and financing a breeze for the local entrepreneur.

However, the simplified process and easier terms do not mean that you can shirk your responsibilities and be insulated from a potential financial breakdown. Every liability in business has repercussions and so does an SME loan or financing. Here's a list of things you should consider before applying.

Consider your loan requirements

To what end is the financing required, and how immediate is the need?

Consider the SME loan amount you need

Depending upon the amount, you will need to prepare a repayment policy.

Consider your company’s financial health

Finally, based on above assessments, take into account the financial position of your business and your ability to repay within the time limit.

Consider the impact of the loan

Will the loan increase your operational productivity in future or improve financial health going forward, enabling you to meet the repayment requirements (in case the answer to point 3 is negative)?

A true assessment of above facts will let you know if the loan you are seeking will grow your SME or lead you into troubled waters. The don'ts to consider are essentially the opposite of the points above.

1) Do not pile additional financial burden on your business unnecessarily.

2) Make informed decisions and take time to consider all options

3) Do not rely on dubious or superfluous data to assess your financial position

4) Avoid local financiers, as most probably you'll end up paying more than the bargain

The SME loan and financing can be both overly complex at times to figure out and at times overly easy to avail. It all depends on the requirements of your enterprise and the credit health of your company. At LendingKart we have made it possible to apply for small ticket loans for SMEs in a completely online process. The document submission requirements are reduced to a bare minimum and the whole process can be tracked in realtime by the applicants. Our solution offers the best of both worlds, you get the benefit of a transparent loan deal with fair EMI and interest rates and the process is faster than going for money to alternate lenders in the market.

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