Micro, small, and medium enterprises (MSMEs) and small and medium enterprises (SMEs) are the backbones for India’s social and economic development. These enterprises contribute approximately 45% to the manufacturing sector while accounting for about 40% of the total exports. Their contribution to the country’s Gross Domestic Product (GDP) is estimated to be over 37%.
One of the biggest advantages of SMEs is employment generation, which helps reduce the poverty. These enterprises also help in lowering the rural-urban gap and decreasing migration. SMEs encourage regional development and increase the production and purchasing power within the country.
There is no denying the importance of SMEs; however, the biggest hurdle is the lack of funds. Most of these businesses do not have access to formal credit facilities, which makes it difficult to scale up operations. As per estimates, the current debt requirements of these enterprises range from INR 15 lakh crore to INR 16 lakh crore.
Until recently, SMEs relied on informal lenders for meeting their fund requirements. Such enterprises refrained from applying for institutional funding because the entire process was cumbersome and time-consuming. Often, enterprises found it difficult to meet the eligibility norms or provide the necessary SME loan collateral.
Another deterrent was the lack of timely access to funds, which made it expensive. However, recently the Government of India and financial institutions have made it easier for SMEs to apply for loans.
Here are four benefits of applying for SME loans from formal lenders:
Institutional lenders understand the nuances of running a small business, and therefore, offer flexible repayment options. You can opt for increasing or decreasing equated monthly installments (EMIs) based on the cash flows of your business. Alternatively, you can repay the loan with periodic bullet payments.
Digitalization has made it easier to access formal credit facilities. You can apply for the loan online with a few simple steps. Additionally, the SME loan documents required are minimal, which ensures the application, sanction, and disbursal is completed in a short period.
- Tax benefits
Another advantage of these loans is the reduction in your tax liability. A part of the profit utilized towards the repayment of the loan is tax-exempt, reducing the total tax payable.
Contrary to common perception, the SME loan interest rates are economical, based on your business model, past financial performance, and credit history. Lenders may also charge nominal one-time charges like processing fees at the time of application.
Mahindra Finance offers small business loans, which can enable you to take your venture to the next level. Check the SME loan and credit solutions on the lender’s website and apply for funding today.