Small businesses and MSMEs form the backbone of India’s economy and may hold the key to solving India’s unemployment crisis. To sustain operations and eventually expand, these small businesses require large amounts of capital.
However, 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 small businesses.
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.
Bank of Baroda has schemes for all commercial enterprises, including those outside the regulatory definition of SME but having a turnover up to Rs 150 crore, as well as new infrastructure and real estate projects where the project cost is up to Rs 50 crore. The bank treats them as part of SME segment.
Baroda SME Loan Pack
It provides 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 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 with 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 improvement of 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 annual sales turnover of Rs 1 crore to Rs 150 crore can apply for this.
India’s fourth largest private sector bank, Yes Bank, was started in 2004. It primarily operates as a corporate bank, but is also into retail banking and asset management. Yes Bank provides loans to small businesses under four programmes:
Under this, the maximum loan amount is Rs 4 crore, and Non DP Linked OD is up to Rs 2 crore. It is usually in the form of fund-based credit such as Cash Credit, Overdraft, Working Capital Demand Loan , Term Loan, Drop Line OD, Export Credit, etc.
It is also available in non-fund based format such as Letter of Credit, Buyers Credit, Bank Guarantee. The loan is parameterised, template-based fast track sanction with local credit delegation.
This loan follows a scorecard-based appraisal model. Similar to YES Samriddhi, it is usually in the form of fund-based credit such as Cash Credit, Overdraft, Working Capital Demand Loan , Term Loan, Drop Line OD, Export Credit, etc.
It is also available in non-fund based format such as Letter of Credit, Buyers Credit, Bank Guarantee. The maximum loan amount in Rs 2 crore.
This facility is available for businesses as well as self-employed individuals such as doctors, engineers, CAs, architects, etc. The minimum loan amount is Rs 20 lakh and the maximum amount is Rs 1 crore. The loan a parameterised, template-based product for faster approvals.
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 upto three years in case of Supplier’s Credit LC. The Bank Guarantee is 36 months (including claim period). Further, the Letter Of Undertaking is upto 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 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.
Bank of India
Started in 1906, Bank of India is government-owned since 1969. The Mumbai-headquartered commercial bank provides financial assistance to small businesses under specific schemes such as Star MSME E-Rickshaw, Star MSME GST Plus Scheme, Star Weaver MUDRA Scheme, Star SME, Education Plus, Star Start Up Scheme BOI, Star Doctors Plus, and TReDs.
It also has small business lending schemes under Star SME Contractor line of Credit, Star SME Auto Express, Star SME Education Plus, Star SME Liquid Plus SRTO, Star Laghu Udyami Samekat Loan, Technology Upgradation Fund Scheme, Pradhan Mantri Credit Scheme, PMMY, Stand Up India, PMEGP, NULM, Weavers Mudra Scheme, and Cluster Financing
Headquartered in Mangaluru, Corporation Bank is a public-sector banking company with a pan-Indian presence. Corporation Bank provides a comprehensive range of innovative and business friendly banking products and services for small business entrepreneurs through its branches across the country.
They fall under Corp SME Tex Plus Scheme, Corp SME Auto Plus Scheme, Corp Gold Card Scheme, Corp SME Credit Card Receivable Funding Scheme, Corp SME Receivable Funding, Corp SME Term Plus Scheme, Corp SME Liquid Plus Scheme, Corp Collateral Free Loan Scheme under CGTMSE, Corp Commercial Vehicle Loan Scheme, and Corp Artisans Credit Card.
Some more examples of schemes are Corp Weavers Credit Card, Credit Linked, Capital Subsidy Scheme (CLCSS), Technology Upgradation Fund Scheme (TUFS), Corp Timber Traders Loan, Prime Minister’s Employment Generation Programme (PMEGP), Corp Vanitha Udyog Scheme (CVUS), and Corp Gold Business Loan