What is an SME Loan?
SME loans are special loans for Small Medium Enterprises. These are business loans that are extended to enterprises of a certain size only. As you can see, these are not given to large organizations. Moreover, the benefit of an SME loan is these are highly customized to suit the needs and requirements of the lender’s clients. The main purpose of SME loans is to meet the needs and requirements of small and medium sized companies.
Small-sized businesses have the perpetual difficulty of getting funds. Medium sized enterprises are faced by this problem too. For them, SME loans are very useful.
What do you mean by SME?
SME is a term to denote Small and Medium Enterprises. The term is useful for segmenting companies and organizations of different sizes. It is to segment businesses, companies and organizations based on their size. According to the European Union, an SME is one that is legally independent as a company and has less that or just 500 employees. Of course, only a medium sized company will have anything close to 500 employees, but fortunately, it also benefits from SME loans.
A small company is one that has investments of more than Rs. 10 lakhs but less than Rs. 2 crores. A medium company is one where the investment is more than Rs. 5 crores but is less than Rs. 10 crores.
Why are SME loans important?
SME loans are very important for the economy, especially right now. These play a significant role in creation of new job roles in any economy. By helping to create capital for companies, it indirectly aids in job creation. Studies have in fact shown than a considerable portion of job creation around the world is due to SME loans. Likewise, these loans contribute to a country’s GDP and ensure money flow across the economy.
One of the features of these loans is that these charge lower interest rates to clients than large banks. This enables clients to benefit from cheaper loan deals.
What are the benefits of SME loans?
There are several benefits in getting these loans, such as:
1) Identification and investing in specific and unique niches
2) It is able to react faster to market and economy changes due to smaller size of companies
3) SMEs help in building better relationship with employees and customers
4) It helps the economy by creating jobs, lowering poverty and raising the GDP of a country
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