Finance Friday: Loans without Collateral for SME’s !
This is probably the first time that a large Nationalized Bank will be offering Loans without any collateral to Indian SME’s !
The global economy slowdown dented the manufacturing sector. Increasing costs, lack of demand and inventories piling up has hurt the manufacturing sector and primarily the SME sector.
Moreover, with the global outlook uncertain, the existing SME’s seem to be in doubt before making any fresh investments for expansion. Interest rates and the fear of not being to factor in the interest payments becomes a deterrent for SME’s looking to avail loans in this fiscal.
To address these tough challenges faced by existing and aspiring SME enterprises, State Bank of India has come out with three sets of solutions. (source)
These are products known as SBI Micro, SME Care and SME Help.
This is a loan scheme for new SME ventures that require a small loan size of up to Rs 5 lakh. The loan is offered by SBI without any other collateral security at a very attractive interest rate structure. The bank charges a fixed rate of 8% per annum on the loan with no hidden or other charges like processing fee or inspection charges. The loan is repayable in three years.
SME units with slightly higher investment and loan requirements are offered loans up to Rs 25 lakh at an interest rate of 10% per annum.
This, too, is offered without any collateral security and with the guarantee cover of CGTMSE. This is available till September 30, 2009.
This is a special package for existing SME customers. An existing customer with a current level of loans up to Rs 10 crore is eligible for this assistance.
Under this scheme, the bank offers additional working capital limits to the tune of 20% of the present working capital limits at 8% interest rate. To enable the SME units to avail of these limits without having to bring in additional capital funds as margin, the bank has relaxed the margin norms and extended cover period for receivables.
It now allows a longer holding period for inventory and does not insist on additional collateral security to cover the new SME Care limit. This scheme is currently available till September 30, 2009.
Existing SME units that desire to make additional investment in the current economic situation require some soft support. This is provided by SBI in the form of SME Help. Under this scheme, any existing SME customer making additional capex and, hence, requiring term-loan assistance is given a new term loan repayable in 5 years.
The interest rate for the first two years stays at 8% per annum interest rate and will be reset at appropriate rate as applicable to the SME unit based on its risk rating.
This move sure looks like a welcome move for the SME sector struggling to come out of the current slowdown unscathed. The focus on SME is important as they are the building blocks of our economy and SBI is sure playing its part in ensuring that the SME sector never feels shortage of capital.
We need more such steps to ensure that SMEs stay afloat during these tough times. Also, these kind of schemes will encourage Entrepreneurship which is the need of the hour right now !
[This post is written by Ankit Agarwal, an ERP Consultant by profession, a wannabe entrepreneur and stock market stalker by passion]