Tips for Choosing the Perfect SME Loan Tenure

Starting a small business of your own is very exciting, as it gives you a chance to be your own boss. However, an out-of-the-box idea is not the only thing you need to get your business up and running. Every business, especially small and medium-sized ones, needs funds to run daily operations smoothly and deal with market fluctuations. Sometimes, it can get difficult to arrange the required funds to meet the demands of your business. In such a scenario, the concept of SME and MSME loans comes into play.

Table of Content

• What is a SME Loan?
• Choosing the Right Loan Tenure
• Conclusion

What is a SME Loan?

A SME loan, as the name suggests, is a financing option designed to cater to the monetary needs of small and mid-size businesses. Available at relatively lower interest rates, these loans allow you to arrange funds for your business in the most hassle-free way. These loans come with a number of benefits, such as flexible repayment options, minimal documentation, etc. In addition to this, these loans are eligible for tax deductions as well. You can obtain a SME/MSME loan for starting a new business as well as an existing one.

Suggested Read: How To Calculate Your Sme Loan Eligibility

Choosing the Right Loan Tenure

When applying for an SME or MSME loan, it is important to choose the right loan tenure. Since different loan tenures come with their own set of benefits and limitations, you should pick one that suits your specific requirements. This can help you repay the loan without putting any unnecessary financial burden on yourself. In addition to this, you can also plan your finances in a much better way.

Here are a few important tips that can help you choose the right tenure for your SME loan:

Assess Your Financial Situation

While deciding the tenure for a SME loan, it is always recommended to assess your financial situation beforehand. For this, you need to take several factors into consideration, such as your cash flow, existing liabilities, business expenses, etc. This will help you understand your business’ repayment capacity and help you choose a loan tenure accordingly.

Understand the Purpose

The next thing you need to take into consideration is the purpose of availing a loan. If you need money to take care of an immediate expense, you can opt for a shorter tenure. But if you need funds to meet a long-term goal, you should choose a longer tenure.

Consider the Loan Amount and EMI Implications

This is a well-known fact that the loan tenure has a direct impact on the loan amount and the EMI. When you choose a longer loan tenure, this means lower monthly repayments. It can be helpful, especially if you’re borrowing a large amount of money. With a shorter loan tenure, on the other hand, you will end up paying a high EMI amount, but the total applicable interest will be less.

Compare Interest Rates for Different Tenures

Nowadays, lending institutions are offering a wide range of schemes for SME loans with different interest rates and tenures. It is best to compare different loan tenures and the interest rates applicable to each one of them. 

In addition to this, it is also important that you pay attention to all the terms and conditions of a particular loan scheme. Always check if there are any extra charges applicable, such as processing fees, late fees, or other penalties, while choosing a loan scheme. This will help you make a better decision.

Suggested Read: Sme Loan Interest Rates: Everything You Need To Know

Check Prepayment and Foreclosure Terms

Another thing you need to check is if the lending institution is providing a pre-payment or foreclosure option and if there are any penalties for that. It is always recommended to choose a loan scheme with no foreclosure charges. It gives you the flexibility to reduce the tenure by clearing off your SME loan earlier. 

Conclusion

Are you also in the process of availing a SME/MSME loan? At Muthoot Finance, you can find a wide range of schemes for SME/MSME loans with flexible eligibility criteria and competitive interest rates. And if you’re unsure about which tenure is the best fit for you, we can help you with that as well. Our team of finance experts will assist you in choosing a loan tenure that fits your current financial situation and future goals. For more information, you can visit your nearest Muthoot Finance branch.