Starting and growing a business requires a lot of financial resources, and the ability to access credit facilities can make a huge difference for business owners. It can enable them to manage cash flow, acquire equipment, expand operations, or sustain their business in the face of challenges. State Bank of India (SBI), one of India’s leading financial institutions, offers a variety of loan products to assist businesses at different stages of their growth.
In this blog, we have provided a comprehensive guide to some of SBI’s loans to small business enterprises, the types of loans it grants, along with its eligibility and key features.
1. SBI Business Loan for Business Correspondents (BCs)
What is a Business Correspondent Loan?
SBI offers a specialized loan to Business Correspondents (BCs) and Customer Service Providers (CSPs), who act as intermediaries to provide banking services in rural and underserved areas. These Community Service Providers (CSPs) play a crucial role in enhancing financial inclusion by offering basic banking services, such as withdrawals, deposits, and remittances, to communities that would otherwise lack access to traditional banking services.
Purpose of the Loan
There are three main types of loans offered under this category:
- Overdraft (OD): To meet the working capital requirements of CSPs.
- Demand Loan (DL): A general-purpose loan to meet various credit needs of the CSP.
- Term Loan (TL): This loan is intended for acquiring fixed assets, such as computers, printers, and furniture, necessary for setting up or upgrading a CSP outlet.
Eligibility Criteria
To qualify for this loan, the CSP/Kiosk Operator must meet the following requirements:
- They must be between 18 and 60 years of age.
- Have a valid agreement with SBI as a Business Correspondent for providing banking services.
- The CSP should have been in operation for at least one year with SBI and must have been residing in the operational area for a minimum of 3 years.
Loan Features
- SBI offers a range of facilities, including overdrafts, demand loans, and term loans, with loan amounts starting from ₹25,000. For existing CSPs with a minimum of 1-year engagement with the BC, the maximum loan amount can go up to ₹ 5 lakhs, whereas new CSPs are eligible for loans up to ₹2.5 lakhs.
- The existing CSPs are eligible for loans up to 12 times the average commission earned in the last 12 months. Additionally, the loan is mandatorily covered under the Credit Guarantee Fund for Micro and Small Enterprises (CGFMSE).
Interest Rates and Repayment Period
- Interest rates are linked to the bank’s external benchmark rate (EBR), with an additional margin based on the borrower’s rating.
- Repayment terms vary: OD loans require annual review and are typically granted for 12 months, whereas term loans can extend up to 7 years, with a maximum moratorium period of 3 months.
Processing Fee and Other Charges
SBI charges a nominal processing fee of 0.50% of the loan amount for loans above Rs. 50,000. The other charges are applicable in accordance with the banks’ guidelines.
Borrower’s Margin or Contribution
It is the amount that the borrower has to pay from their own pocket to the bank while taking the loan.
Example:
- Total cost of business = ₹5 lakhs
- Loan from bank = ₹4 lakhs
- Your contribution = ₹1 lakh → This is your margin (20%).
Borrower’s Margin / Contribution
- For Existing CSPs/Kiosk Operators with at least one year of engagement with the BC:
-
- Nil (No margin required)
- For New CSPs/Kiosk Operators who have not completed one year of engagement with the BC:
- Loans up to ₹50,000: Nil (No margin required)
- Loans greater than ₹50,000 and up to ₹2.50 lakhs: 10%, i.e., the borrower must contribute 10% of the loan amount
2. SBI SME Credit Card
What is an SME Credit Card?
SBI offers an SME Credit Card to Micro, Small, and Medium Enterprises (MSMEs), which acts as an alternative to conventional working capital loans. This loan enables entrepreneurs to access short-term credit for operational needs without the formalities of traditional loans.
Eligibility Criteria
The eligibility for the SBI SME Credit Card includes businesses like:
- Small Industrial Units
- Micro Enterprises
- Self-employed professionals
- Retail Traders
- Transport Operators (SRTO)
- MSMEs with a satisfactory financial track record of at least two years.
Additionally, businesses must meet a scoring model requirement, where a minimum score of 60% qualifies them for the product.
Loan Features
- The loan facility includes both Cash Credit and Term Loans, with a maximum loan amount of ₹10 lakhs. One of the most attractive aspects of this product is that no collateral security is required.
- Loans are covered under CGTMSE (Credit Guarantee Fund for Micro Units).
- Assessment of loan amounts is based on working capital needs, project costs, or the applicant’s gross annual income as per income tax returns.
Interest Rates and Repayment Period
- The interest rates for the SME Credit Card are linked to the bank’s external benchmark rate (EBR) for MSMEs or the MCLR for non-MSMEs.
- Repayment terms vary: Cash Credit is repayable on demand, with a validity of 3 years, while term loans can extend up to 5 years for amounts below Rs. 5 lakhs and up to 7 years for amounts greater than ₹5 lakhs.
Processing Fee and Other Charges
- The processing fee for this loan is ₹1000 plus GST, and there is no upfront fee.
Borrower’s Margin / Contribution
- Up to ₹50,000: Nil, i.e., no margin required
- Loans between ₹50,001 to ₹10 lakhs: 10%, i.e., the borrower must contribute 10% of the loan amount
So, for loans of ₹50,000 or less, the borrower is not required to contribute any margin. However, for loans greater than ₹50,000 and up to ₹10 lakhs, a 10% margin is required.
3. SBI SME Smart Score Loan
What is the SME Smart Score Loan?
SBI’s SME Smart Score Loan is designed for larger MSMEs, with the loan amount starting from ₹10 lakhs and going up to ₹50 lakhs. This loan product is ideal for established micro and small enterprises (MSMEs) in the industrial, trading, and service sectors that seek to expand their businesses further. The loan is assessed based on a unique scoring model developed by the Bank itself, which evaluates the overall creditworthiness of the business.
Eligibility Criteria
To be eligible for the Smart Score Loan, MSMEs must meet the following requirements:
- They must be registered as a proprietorship firm, a partnership firm, or a public or private limited company.
- The applicant must be between 18 and 65 years of age.
- The business must be a Small or Medium Enterprise under the MSME category.
- A minimum Smart Score of 60% with no less than 50% in individual sub-categories (Personal Details, Business Details, and Collateral Details) is required.
Loan Features
- The loan is covered under CGTMSE, ensuring that no collateral security is required for eligible businesses.
- The loan is also assessed based on the business’s turnover, gross annual income, and project cost.
The Smart Score Loan offers a variety of credit facilities:
- Dropline Overdraft
- Cash Credit
- Term Loans
- A combination of these facilities, depending on the customer’s specific needs.
Interest Rates and Repayment Period
- The interest rates are competitive and are linked to the bank’s EBLR (External Benchmark Lending Rate) for MSMEs or the MCLR (Marginal Cost of Funds Based Lending Rate) for non-MSMEs.
- Repayment terms for Cash Credit loans require an annual review, with loan renewal every 2 years. For Term Loans or Dropline OD, repayment terms extend up to 7 years with a moratorium of up to 6 months.
Processing Fee and Other Charges
- The processing fee is 0.40% of the loan amount.
- Other charges are applicable as per the bank’s guidelines.
Borrower’s Margin / Contribution
For the SME Smart Score loan, the contribution requirements are based on the type of loan:
- For working capital loans, the borrower needs to contribute 20% of the loan amount.
- For term loans, the contribution requirement is higher at 33% of the loan amount.
Conclusion
SBI offers various business loans to cater to the diverse needs of different business segments, from small kiosk operators and Business Correspondents to larger MSMEs. The flexibility of these loan products, combined with competitive interest rates and the lack of collateral requirements for many, makes them attractive to a wide range of entrepreneurs. Each type of loan comes with its own set of benefits, eligibility criteria, and repayment terms, which provide business owners with the flexibility they need to manage their cash flow, grow their business, and sustain themselves in the competitive market.
