The small and medium enterprise sector (SME) plays a significant role in developing modern businesses and maintaining the supply chain.
However, they are the most vulnerable in times of economic downturns or weak macroeconomic outlooks. SME units find it challenging to access funds from financial institutions as business loans and approval processes become more demanding.
There are two main avenues for SME lending – SME loans and SME credit cards. These help such businesses to survive and grow in the changing market environment.
According to a report by the Indian credit bureau CRIF High Mark, the total loans sanctioned to MSMEs stood at a whopping ₹37.29 trillion in FY22, witnessing a 182% growth from FY20.
However, many small businesses still struggle to access these loans due to their stringent sanctioning rules. This is partly because such companies are considered high risks and low ROI lendees.
However, you can overcome these problems and improve the chances for loan approval by using some smart strategies like:
Having a proper business plan
Banks & other SME lending institutions prefer giving loans to organizations with a stable income source and who can provide an assessment of the business’s performance in the next 2-5 years based on hard facts.
Thus, it makes sense to make a realistic financial projection of your business based on current numbers and market analysis before applying for a loan.
Improve your credit score
Credit score plays an important role in getting approved for business credit through a loan or SME credit card. If the SME or its owner has a low credit score, the chances for approval drop instantly.
Therefore, the first step is to repair and improve your credit score. The best strategy to do so fast is to maintain a low credit utilization ratio, a good repayment record, and a stable income.
Ensure a healthy cash flow
Your business’s cash flow is one of the prime metrics to gauge its financial health. Thus, SME lending institutions perceive that potential borrowers with a healthy cash flow are more likely to repay their loans on time.
Thus, you must maintain a healthy cash flow and keep the debt service coverage ratio (DSCR) within the stated limits. DSCR measures your business’s current cash flows to pay its existing debt obligations.
By ensuring that your business follows these strategies, you can easily improve your odds of getting your SME loan application sanctioned.
Apart from SME loans, an SME credit card with the best-in-class credit limit can also provide the necessary funds to meet your working capital needs.
founderscard is a leading SME credit card in India and offers the best-in-class credit limit for SMEs, along with a low forex fee on international transactions, and an interest-free credit period of up to 51 days. Visit www.founderscard.in today to know more.
