The society is currently witnessing rapid industrial growth. With the advent of financial assistance through SME, bank loans, and other economic means, India has facilitated in providing a thriving arena for the business industry. Financing is essential for any business to begin, thrive, and expand. The SME loans are designed to assist every such thriving small and medium enterprises to achieve its business goals.

What is an SME loan?

SME loan is a business loan extended to small and medium business enterprises for meeting their financial and business requirements.

Major objectives include :

  • Assist in the maintenance of credit flow into these small and medium business enterprises.
  • Formulate rules and norms that govern the incoming and outgoing credit into these enterprises
  • The SME loan policy is appended by the standards that dictate how much credit to lend and the rules of lending

Interest Rates And Tenure For Sme Loans

The interest rates provided for a business loan in India by banks and NBFCs (Non-Banking Financial Company) vary, wherein the lowest interest rate offered is 8.5%. It can go up to 24% per annum.

The interest rates offered relies on the tenure, loan amount, and the collateral submitted.

Eligibility Criteria

The business loan eligibility norms vary between lenders. Listed below are some of the general requirements of banks or NBFCs.

  1. Business existence tenure should be a minimum of three years
  2. The entity/business should be in profit for the past two years
  3. The applicant firm can be any of the following:
  4. a manufacturing unit
  5. a sole proprietorship firm
  6. a partnership firm
  7. a public/private enterprise

Documents required for obtaining an SME loan

A business loan application should be submitted with proof documents. These are categorized into two:

  • General documents or standard documents that will be required by any bank for approval of SME loan
  • Facility specific materials are needed for determining a particular facility out of the loans provided for SME.

Let’s delve further into the documentation required.

General Documents:

  1. Application form

It is the first document required by every lender. The applicant should fill all the details mentioned accurately. Failing this can lead to a non-approval of the loan. The applicant will be notified with acceptance of the form after submission if the details provided are satisfactory and authentic.
Self Attested Copies of Know Your Customer (KYC) Documents

These documents give the banks or NBFCs the essential information regarding name, age, gender, proof of address, and other relevant details. These includes:

  1. Entity proof (partnership deal or the certificate of incorporation or the shops and the establishment certificate )
  2. Copy of PAN Card
  3. Address proof
  1. Financial documents, which include:
  2. IT returns for the last three years
  3. Recent Financial Statement of the firm: This is to ensure that the company is capable of repayment and is not undergoing numerous losses.
  4. Sales and GST Tax-related documents should be submitted.
  5. The bank statements that are not more than 45 days old. This document is required for the banks for assurance of repayment capacity and legal existence of the applicant.

Facility Specific documents

  1. Contract agreements of letters of intent
  2. Inland letter of credit transactions (Last three)
  3. Project report which encapsulates all details about the project
  4. A government approval document for power, pollution, building plan along with the documentary proofs
  5. Performance invoices of assets bought and Documents of land and building


Now, the documentation required for business loan for SME has been discussed; it is essential that loan applicants carefully provide them for loan application approval. Also, applicants should further check with the bank for any lender specific documents needed.