What are the Different Types of MSME Loans Offered by Small Finance Banks in India?

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MSME Loans from Small Finance Banks

Different types of small business loans by Small Finance Banks in India.

Small Finance Banks are niche banks that cater to customers such as small businesses, farmers and unorganised sector entities, customers who are not served by major banks. These banks are easily distinguishable from major banks because they have the term “small finance banks” in their name, as mandated by law.

There are 10 Small Finance Banks in India:

  • AU Small Finance Bank
  • Capital Small Finance Bank
  • Equitas Small Finance Bank
  • ESAF Small Finance Bank
  • Fincare Small Finance Bank
  • Jana Small Finance Bank
  • North East Small Finance Bank
  • Suryoday Small Finance Bank
  • Ujjivan Small Finance Bank
  • Utkarsh Small Finance Bank

RBI has different regulatory requirements for these banks as compared to major banks. Small finance banks can only provide basic banking services such as deposits and lending schemes including small business loans.

Nonetheless, due to their nature of work, MSME loans form a major part of their portfolio. Here is a list of some of these types of MSME loans from these banks:

  • Working Capital Loans: Working Capital loans, as the name suggests, help small businesses meet their day-to-day financial needs. Borrowers can use funds from these loan schemes to make salary payments to staff, make bill payments, purchase raw material, etc. These are short-term loans that must be repaid within 12 months.
  • Term Loans: Term loans are designed to help small businesses meet their capital expenditure needs, i.e. long-term financial needs for acquiring fixed assets, purchasing of new machinery and upgrading equipment. The repayment period for these loans may range anywhere from 1 year to 5 years. The quantum of loan depends on the needs of the borrower.
  • Asset-backed Loans: These are secured loans that help businesses get funds by pledging an asset such as land / property, vehicle, etc. The quantum of the loan depends on the repayment capacity of the borrower. In general, the loan amount is lower for micro enterprises as compared to loan amount sanctioned to small and medium enterprises.
  • Industry-specific Business Loans: Since Small Finance Banks cater to a niche audience, they offer some industry-specific loans to help business ventures in those sectors such as agriculture, manufacturing and services get the financial assistance they need to carry out their business activities smoothly. These loan schemes are essentially working capital loans, term loans, mortgage loans, etc. but only businesses in specific industry sectors can benefit from these products.

A Final Word

These were the different types of small business loans offered by small finance banks in India. If you want to know more about MSME loans, please go to our MSME loans section where we have discussed small business loans from other Indian banks in detail.

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