SME Finance: When Should You Take One?


Enterprises require finance to deal with day-to-day business requirements. Obtaining SME finance can be a tedious process, if not planned well. Small and Medium scale companies need additional funding for business expansion, equipment purchase, managing large orders, staff expansion, and credit score building. These could be availed through an SME and MSME loan, a machinery loan or even a working capital loan from leading NBFCs.

SME Finance

Every organization requires finance to deal with its day-to-day business requirements. Capital requirements of a company differ with its size. Small organizations generally require less capital. However, obtaining SME finance can be a tedious process, if not planned well.

SME Finance
SME Finance

Whether your business is small or large, going for a loan is the best way to boost your business. Therefore, it is essential for an SME to know the right time to go for an SME loan.

Here are a few scenarios when you should consider taking a business loan.

Business Expansion

Every entrepreneur dreams about business expansion. However, additional finance is always required while considering business expansion. Reinvesting your earnings might be a good idea, but is not always sufficient to give a strong push to your business. An SME loan may come in handy in such a situation.

Scaling up your business involves expanding your existing business, within a current setup. It may even be about developing the market in a new location, altogether. Business growth is a process, backed-up by strong financial support. This growth can eventually lead to an increase in revenue. Going for an SME loan is a good idea if you are considering that your additional revenue is going to be more than your business loan interest.

Purchasing Equipment

Every industry needs the right quality equipment for production to fall in place. In the case of the manufacturing sector, you need mechanical tools and machinery. You require the latest computers and IT devices, in the case of the services sector. Purchasing equipment can be expensive, and it is wise to take a machinery loan to purchase quality equipment.

Large Order

You may not want to turn down a business opportunity, to avoid debt. While considering such situations, you should look into its potential revenue. You may also want to consider the trade-off between potential debt and revenue.

For example, your business is running well with sufficient cash flow. Consider you get a large order, with a tight delivery timeline. You would require additional workforce, raw materials, and machinery to meet the urgent business requirement. For this, you need additional finances. A business loan can come in handy during such situations, provided, it overweighs the debt.

These days, leading NBFCs such as Bajaj Finserv offer SME loans without collateral. This makes obtaining loans easier for small businesses.

Staff Expansion

Human resources play a critical role in any business. Investing in new talent is the best way to keep the company competitive and innovative. Every enterprise has to go through the process of staff expansion, at some point or the other. If you are looking to employ skilled professionals, you need to be prepared to pay handsome remunerations. Hiring new talent, thus, requires additional finance. Therefore, you may consider taking a business loan, if your motive is staff expansion.

Building Credit Score

SMEs have a hard time getting large business loans. Moreover, getting a business loan requires a good credit score. For large-scale financing in the future, you need to start working towards building a good credit score. You can do this by taking small business loans. For a new business, receiving and paying small business loans can help in building a good credit score. This also helps in developing a strong credit image with your preferred lender. However, you need to be cautious about repaying your loans on time.

External finance through business loan is essential to support many strategic business operations. A small enterprise should carefully consider the pros and cons of a business loan. Getting and repaying business loans on time builds a good credit score. However, failing to repay it on time could hurt your credit score. To know more about SME loans in India and your eligibility. NBFCs brings you pre-approved offers for business loans and a host of other financial products. Not only does this simplify the process of availing your loan, but also helps you save on time.