The revenue from the SME sector of our country is growing rapidly. Every day, a good amount of new SMEs is being formed. In the general sense, compared to a big company or corporation, a small business is a company with fewer employees, minimum assets and lower yearly turnover. Hence, capital is required to either establish one or help run it. When an SME faces times of financial difficulty or builds up plans of expansion, their options to avail finances are usually limited. They are forced to approach multiple lenders until one finally decides to grant them a loan. Some lenders may even persuade the borrower into depositing any sort of collateral as security. SMEs find loan approvals difficult due to the availability of limited assets.
How can SMEs overcome this financial obstacle?
An SME can choose to opt for unsecured business loans. Unsecured business loans are small business loans that can be sanctioned even if the borrower holds no collateral to deposit. Now more and more financing agencies are offering SME loans online to meet the growing demands of SMEs.
So how can an SME loan help a business grow faster? Here are a few points to understand the concept better.
- No requirement of collateral: SME may be forced to shut down due to the lack of funds if major business funding corporations deny loans because of lack of collateral. There is no need to mortgage any property or asset in order to apply for an unsecured loan, due to this benefit, an SME gets to retain its properties to either be sold or leased off for further profits when needed.
- Short Tenures: Unsecured business loans are generally expected to be paid back in a shorter duration of time, this helps the company manage its funds better and in addition, getting rid of debts fast enables the SME to apply for newer and different kinds of loans when needed.
- Help boost credit score: One financial measure that cripples new SME or SMEs with no trace of prior loans is a bad credit score. Paying back installments of an unsecured SME loan timely helps boost the CIBIL score of the SME. Facing the fact that such loans are never of large amounts, paying off the loan is hassle-free if budgets are planned out well. A good CIBIL score ensures that the SME will hold high chances in getting their loans approved in the future, even with major funding corporations.
These loans have collateral-free approvals, shorter tenures for purging off the loans quickly and thereby boosting CIBIL scores with predominant credit history.
According to a research undertaken, loans approved by small banks were more than big banks, 48.7 % and 23 % respectively whereas alternative lenders approved 60.7% loans.
Institutional lenders i.e. savings banks and life insurance companies approved the highest number of applications i.e. 62.8 % and credit unions approved 42 % of applications.
SME loans are a boon for start-ups and small businesses. Organizational efforts many a time find a need for funds to be produced easily and in recent time SME loans have made the processes even better giving a ray of hope for letting the companies grow further.
SME loans provide financial support that can help in generating revenue to a great extent. It supports in bringing in innovation, new talent, launching new products and even in business expansion. So, if you are an SME owner with big goals, don’t let small financial challenges hinder your goals.