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If you have a new business opportunity ahead of you and need urgent funds to encash it, you can opt for a business loan or a commercial loan. A small business loan is specially curated by lenders to cater to the financial needs of a small businesses. However, before applying for a small business loan, you should know the guidelines laid down by the RBI regarding small business loans in India. Here’s everything you need to know about these guidelines: 

Definition of small business according to the RBI

As per the norms set by the government, Micro, Small, and Medium Enterprises (MSME) are eligible for a small business loan in India. Micro, Small, and Medium Enterprises can be defined as:

  • A Micro Enterprise: An enterprise with a maximum turnover of Rs. 5 Crores, having an investment of a maximum of Rs. 1 crore in the plant, machinery, and equipment. 
  • A Small Enterprise: An enterprise with a maximum turnover of Rs. 50 Crores, having an investment of a maximum of Rs. 10 Crores in the plant, machinery, and equipment.
  • A Medium Enterprise: An enterprise with a maximum turnover of Rs. 250 Crores, having an investment of a maximum of Rs. 50 Crores in the plant, machinery, and equipment. 

It is mandatory for all these enterprises to obtain the ‘Udyam Registration Certificate’ by registering online on the Udyam Registration Portal. 

 

Both retail and wholesale trades are allowed to register for the Udyam Registration Certificate and are eligible for a small business loan. 

 

RBI Guidelines about small business loans in India

Here are some basic guidelines by the RBI for small business loans in India:

  • All credit matters, like the interest rates charged for lending, are governed by the lending policies of the lending institution itself. This has been done under the financial sector liberalisation and deregulation by the RBI.
  • Lending institutions have been directed not to accept any collateral security for the loan amount of up to Rs. 10 lakhs extended to micro and small businesses. 
  • Once you submit the loan application online or offline, you will be given an acknowledgement number and the time frame within which the loan will be processed. This time frame is-
  • Two weeks to process a credit of up to Rs. 5 lakhs.
  •  Five weeks for a credit amount between Rs. 5 lakhs and Rs. 25 lakhs.
  • Eight weeks for credit above Rs. 25 lakhs.

This time frame may vary for different lending institutions as per their policies. 

  • The lending institutions are allowed to charge a processing fee and other charges for the credit facility they provide. 
  • The lending institution must provide the applicable rate of interest, the annual rate of interest, additional charges, and terms and conditions affecting the rate of interest to the loan applicant. 

You can approach a reputed lender like Muthoot FinCorp for small business loans in India. Muthoot FinCorp offers you small business loans ranging between Rs. 15,000 to 1,00,000 for first time customers, for a maximum tenure of 36 months. 

 

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