These 5 banks offer easy business loans to MSMEs and entrepreneurs
MSMEs form the backbone of India's economy and may hold the key to its revival from the impact of the COVID-19 pandemic. Former MSME Union Minister Nitin Gadkari had said his mission is to raise the contribution of the MSME sector to the country's GDP to 40 percent from 29 percent.
But to sustain operations and eventually expand, India's MSMEs require large amounts of capital. The sector is facing a working capital crunch, and there is a lack of access to affordable credit. To account for this, several banks and financial institutions have stepped up their lending to small businesses.
Here are some of India's top banks and their financial schemes for MSMEs:
Bank of Baroda
KP Singh, Head, MSME and government relationships, Bank of Baroda
Started in 1908, public sector banking and financial services company Bank of Baroda is a key institution for financing working capital requirements for MSMEs and offers the following schemes:
Baroda SME Loan Pack
It provides a single line of credit for meeting SME borrowers’ working capital as well as long-term requirements within the overall limit approved by the bank. The purpose is to provide hassle-free credit for working capital (fund-based and non-fund-based) and also long-term requirements, taking into account the nature of business, cyclical trends, cash flow projections, peak-time requirements, and any eventuality of unforeseen spurt in the business.
MSME Capex Loan
The loan is to be considered for capital expenditure related to the regular business activity, such as replacement of old machinery, purchase of balancing equipments, modernisation, investment in research and development, installation of captive power plants, upgradation of technology, etc.
SME Short Term Loan
The purpose of this short-term loan is to meet temporary shortfall/mismatch in liquidity, for meeting genuine business requirements. Micro, Small, and Medium Enterprises as per regulatory definition and all other entities with annual sales turnover up to Rs 150 crore can apply for this. They need to have satisfactory credit rating for the last three years. (BOB-5 & ABOVE), latest balance sheet, satisfactory financial performance, and satisfactory dealings with the bank for at least three years.
SME Medium Term Loan
This loan aims to augment enterprises’ working capital gap and to help in the improvement of the current ratio and also for meeting genuine business requirements. The facility will also be available for repayment of secured and unsecured Loans of other banks or institutions, but not for purposes unrelated to the enterprises’ activity. Micro, Small & Medium Enterprises as per regulatory definition and all other entities with an annual sales turnover of Rs 1 crore to Rs 150 crore can apply for this.
Yes Bank was started in 2004. It provides loans to small businesses under Guaranteed Emergency Credit Line for MSMEs, Smart Edge, Smart Overdraft, Cash Backed Lending Program, and more.
Guaranteed Emergency Credit Line (GECL) for MSMEs
GECL is an MSME loan for which 100 percent guarantee would be provided by National Credit Guarantee Trustee Company (NCGTC) to the bank, and which will be extended in the form of additional working capital term loan facility to eligible MSMEs.
Credit under GECL would be up to 20 percent of the borrower’s total outstanding credit up to Rs 50 crore, excluding off-balance sheet and non-fund-based exposures, as on February 29, 2020.
The Smart Edge programme is designed to empower MSMEs by providing easy access to finance for their working capital and other business requirements, with credit limits ranging between Rs 1 crore to Rs 3 crore based on scorecard -linked assessment model.
This scheme is aimed at providing working capital up to Rs 1 crore without balance sheet for MSMEs engaged in manufacturing and trading as well as professionals like doctors, Chartered Accountants, engineers, and architects.
Cash-Backed Lending Programme
This is a non fund-based scheme in the form of Letter of Credit, Buyers Credit, and Bank Guarantee. The Letter Of Credit is for 180 days or up to three years in case of Supplier’s Credit LC. The Bank Guarantee is 36 months (including the claim period). Further, the Letter Of Undertaking is up to one year for arranging BC for non-capital goods and upto three years for arranging BC for Capital Goods.
India's largest private sector lender by assets, HDFC Bank is headquartered in Mumbai, Maharashtra. HDFC Bank offers financial assistance to small businesses through these working capital loans, business loans, and term loans:
Working Capital Loans
The bank offers priority processing for SME working capital requirements through a dedicated relationship manager and doorstep service under Cash Credit Overdraft, Term Loan (TL), Letter of Credit (LC), Bank Guarantee (BG), Packing Credit (PC), Post Shipment Finance, Bill Discounting, etc.
The bank’s business loan features include loans of up to Rs 50 lakh, waiver of collateral or guarantor, and even the benefit of business loan balance transfer. In addition, it offers special benefits on business loans, such as overdraft facility and flexible tenure options.
Term Loans are offered to businesses up to a tenure of five years for their expansion, capital expenditure, and for fixed assets. HDFC Bank also offers Short Term Finance options that are structured to meet SME’s individual needs. The bank will schedule repayments to match the business’ available cash flow.
ICICI Bank is an Indian multinational banking and financial services company with its registered office in Vadodara, Gujarat, and corporate office in Mumbai, Maharashtra. It offers MSMEs a host of customised financial products and services to positively impact their bottom line.
Loans for SMEs
The bank offers SME loans in the form of cash credit/overdraft for meeting working capital finance requirements, and export credit to provide pre-shipment and post-shipment finance. It also provides a Letter of Credit to facilitate trade, term loans for the purchase of commercial assets and business expansion needs, and more.
These loans come with flexible collateral options in terms of residential, commercial, industrial property, and liquid securities.
Targeted at SMEs that may not have the requisite collateral, ICICI Bank offers collateral-free cash credit and term loans up to Rs 2 crore under CGTMSE scheme of SIDBI and Ministry of Small and Medium Enterprises as defined under MSMED Act, 2006.
ICICI Bank also offers various other types of working capital loans, term loans, GST business loan, and more. Click here for more information on these schemes.
Bank of India
Started in 1906, the Bank of India is government-owned since 1969. The Mumbai-headquartered commercial bank provides financial assistance to small businesses under specific schemes such as CLCS-TU Scheme, Star MSME E-Rickshaw, Star MSME GST Plus Scheme, Star Weaver MUDRA Scheme, Star SME Education Plus, Star Start Up Scheme and several more.
The bank also offers government-sponsored schemes such as Stand Up India, Pradhan Mantri Mudra Yojana (PMMY), Weavers Mudra Scheme, Cluster Financing, and more.