What is SBI Asset Backed Loan & MSME Loans?

Anubhav Dwivedi -
  • SBI Asset Backed Loan and MSME Loans are financial products offered by the State Bank of India (SBI) designed to support individuals and small businesses in their financial needs.
  • The SBI Asset Backed Loan allows borrowers to leverage their assets, such as property or fixed deposits, as collateral to secure funding. This type of loan offers flexible repayment options and competitive interest rates, making it an ideal choice for those seeking additional liquidity.
  • On the other hand, MSME Loans cater specifically to Micro, Small, and Medium Enterprises (MSMEs). Recognizing the crucial role MSMEs play in the economy, SBI offers various loan schemes to help these businesses grow. These loans facilitate working capital, equipment purchase, and expansion efforts, ensuring that MSMEs have access to the necessary funds to thrive.
  • Together, these loans from SBI empower borrowers to achieve their financial goals while contributing to economic development.

We can provide you with useful information on how such loans typically work.

SBI Asset-Backed Loan:

Definition:

  • An asset-backed loan from SBI would likely involve using specific assets as collateral to secure a loan.

Collateral Types:

  • Assets that could be used as collateral may include real estate, equipment, inventory, accounts receivable, or other valuable items owned by the borrower.

Loan Purpose:

  • These loans are often used for business purposes, allowing businesses to leverage their assets to secure funding for expansion, working capital, or other financial needs.

Interest Rates and Terms:

  • The interest rates and terms for asset-backed loans can vary based on factors such as the type and value of the collateral, the borrower's creditworthiness, and the purpose of the loan.

Risk and Loan Approval:

  • Asset-backed loans are considered secured loans, which means that there is collateral to back the loan. This can make them less risky for the lender, potentially leading to more favorable terms for the borrower.

SBI MSME Loans:

Definition:

  • MSME loans from SBI are designed to meet the financial requirements of Micro, Small, and Medium Enterprises.

Eligibility Criteria:

  • Eligibility criteria for MSME loans may vary, but typically these loans are available for businesses that fall within the defined MSME category based on turnover and investment in plant and machinery.

Loan Types:

  • SBI may offer various types of MSME loans, including working capital loans, term loans, and other financial products tailored to the needs of small and medium-sized enterprises.

Quantum of loan (Min/Max):

  • Minimum loan amount: > Rs 10 lakhs
  • Maximum loan amount: Rs. 20 crores.
  • However, in cities viz, Mumbai and Delhi loans upto Rs.30 Crores can be considered.

LTV (Loan-to-value%) :

  • Immovable property: 60% of the realizable value.

Pricing :

  • Competitive pricing linked to EBLR / 6 Months MCLR

Repayment Period: Drop-line Overdraft-

  • 12 months to 240 months with either equated reduction in limit or customized reduction in limit, depending upon the cash accruals.
  • Max Moratorium period-18 months based on activity. Interest to be serviced monthly during the moratorium period.

Processing fee/Upfront Fee:

  • For Dropline OD: Upfront/ processing fee of 1% of the limit subject to a maximum of Rs.10 lakhs. For Cash Credit: 0.40% of the loan amount Once in a year.

Government Schemes:

  • SBI often participates in government-backed schemes aimed at supporting MSMEs. These schemes may offer special benefits such as lower interest rates or extended repayment terms.

Online Application:

  • SBI usually provides an online platform for MSME loan applications, making it convenient for business owners to apply for and manage their loans.

FAQs:

What is an asset backed loan?

  • Asset-based lending is a financing method that uses a business's owned assets as collateral for a loan. Lenders assess various assets, including inventory, accounts receivable, property, and industrial equipment, to determine the business's eligibility for funding. This approach allows businesses to secure financing based on their asset value, making it a viable option for companies seeking capital without relying solely on cash flow or credit history.

What is the interest rate on asset backed loans?

  • Asset-based loan rates typically range from 5.25% to 15%. Financing can be structured in two main ways: as an asset-backed line of credit or as an asset-based term loan, providing flexibility for borrowers based on their financial needs.

What are the requirements for an asset backed loan?

  • To qualify for an asset-based loan, you typically need to provide high-value collateral, preferably an asset that depreciates slowly and can be quickly converted to cash. A solid credit and financial history also enhances your chances.

What are the four types of asset backed loans?

The four main types of asset-based loans are:

  • Accounts Receivable Financing: Loans secured by outstanding invoices.
  • Inventory Financing: Loans based on the value of inventory held.
  • Equipment Loans: Loans secured by business equipment or machinery.
  • Real Estate Loans: Loans backed by real estate assets.

What are the benefits of asset-backed lending?

  • If your business has substantial assets, asset-based lending (ABL) can offer significant financing with a covenant-light structure, providing flexibility in future decision-making that may not be available with other loan types.

What is the difference between asset-backed loans and mortgages?

  • The Bottom Line: Asset-backed securities represent ownership in various asset pools, such as auto loans and credit card receivables. In contrast, mortgage-backed securities focus specifically on pools of mortgage loans, with cash flows generated from homeowners' mortgage payments.
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