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Small and Medium Enterprises (SME) are classified based on investment capital entity. It understood in India as an entity where the investment in plant & machinery is between Rs. 25 lakhs to Rs. 10 crores in case of manufacturing industry and between Rs. 10 lakhs to Rs. 5 crores in case of service sector enterprises. As per Section 7 of Micro, Small & Medium Enterprise Development Act, 2006 notified in September 2006 provides a classification of enterprise based on their investment size and nature of activity undertaken by that enterprise. The lending structure and its overall trend in India are elaborated below on brief.
A bank is a good option in some circumstances, but it’s not the only option. Nor is it the one size fits all solution it might have been decades ago. There are many situations where traditional financing options are just not viable. With that in mind, here are three questions to help you and your clients determine the best fit for their situation.
If your client has an opportunity to purchase inventory at a discount but needs to borrow funds to do it, the total interest cost of the loan might be the key metric to help determine whether or not the financing makes sense.
The loan purpose should influence the term. In the above example, it might not make sense to borrow a term of four or five years to purchase inventory that will turn over within a few months. A short-term business loan might make more sense and have a lower total cost than a long-term loan.
The loan amount may help identify where to look for finance.
It’s just too expensive for them to accommodate the lower loan amounts. However, with the streamlined application and approval processes, online lenders may be better positioned to offer those types of loans.
Many SMEs have never checked their business credit scoring, and this is an important step.
Knowing the health of their business will enable SMEs to make informed financial decisions and understand their eligibility for a business loan.
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