April 27, 2022

How to get Loan for your Small Business in Pakistan?

Naveen Shayan

LedgerMax specialist

Pakistan is currently witnessing a great momentum in entrepreneurship. The recent boost in the startups and their blooming journeys are evident that small businesses are progressing well in the country. Considering the fact that small businesses are the backbone of any economy; several microfinance banks are offering loans to small businesses in Pakistan. Small business owners can apply for loans from a variety of sources including banks and microfinance institutions. If you're a small business owner, you must be aware that small businesses are widely impactful. They not only empower you as a business owner by providing assistance in setting up your business but also offer unique employment opportunities to many in the country. As a matter of fact, these loans have become vital for the development of Pakistan. They are contributing immensely to the GDP and are also supporting the masses by providing them numerous job opportunities. Following are some of the best practices to get a loan for your small business in Pakistan:

‍1. Choose the Category of Small Business Loan

‍Before you apply for a small business loan, it is very important that you learn that there are different categories of loans offered by banks and microfinance institutions in Pakistan. Therefore, apply for a small business loan in accordance with your business type and requirements. You are also required to consider the loan length and its particular terms before applying for the loan.

2. Know your Lenders

‍The next step is to identify your lenders. You are required to conduct a thorough research of your business which will help you in identifying the lenders who could provide you small business loans at the lowest interest rate in line with the nature and type of your business.

3. Conduct your Credit Risk Analysis

‍Reviewing your credit risk capacity is very important before you apply for a loan. Small business owners applying for a loan are recommended to assess their profile from the lender's perspective. Consider the following key factors while reviewing your profile:

  • Evaluate your credit history
  • Analyze your cash flows and unsettled loans
  • List down your investors (if any)
  • List down your business assets (if involved)
  • Review your business financial statements
  • Understand each and every fine point related to you loan application

4. Mention your Loan Usage

‍It is crucial to define the usage of your small business loan to its lender. This will show a clear picture of your financial situation to the lender and help them understand that where in particular you will be spending the loan i.e. for the purchase of equipment or for capital expenses etc. Moreover, it also allows you to state the future requirements of your business as well as aids you in placing your business' line of credit during crucial times.

5. Opt for Transparent Financing

‍In the end, the lender is mainly concerned about the repayments of loan on time. Thus, getting loan with respect to collateral security eases the entire loan sanctioning process. Hence, choosing clean financing is also advisable especially for small business owners.

Bank Loans Policy for Small Businesses after Covid-19

During the existing Covid-19 pandemic, the State Bank of Pakistan has introduced temporary schemes for small businesses in Pakistan. The SBP is offering incentives to small business owners to apply for bank loans and not dismiss their employees during this crucial time. Moreover, new relaxations and a drop in end-user rates are some of the additional incentives offered to the SMEs.

Besides providing funds to SMEs for paying the salaries and wages of their workers for 3 consecutive months, the SBP has also cut down the mark up rates for these businesses from 4pc to 3pc. Additionally the banks will be provided refinancing at 0pc. 

The banks are now also allowable by the State Bank of Pakistan to offer financing to SMEs after taking corporate assurances in terms of value or on the basis of their supply chain link with borrowers.

The procedure is simple. Any small to medium sized enterprise is eligible to apply for this scheme by submitting a loan request form as per the direction of the SBP. Banks are also supported to assist an SME owner to borrow up to five million rupees loan. The SMEs can avail this facility from any bank of their choice and not necessarily the ones where they have their business accounts.

Business Loan for the Youth (Prime Minister’s Scheme)

The Prime Minister’s scheme for offering loans to the youth is a great venture by the Pakistani Government to aid predominantly educated and unemployed youth for setting up or developing their small business projects. In this way the government is trying to promote entrepreneurship and cut down poverty and unemployment in the country.

This endeavor is intended to offer business solutions for SMEs aiming at financial demands for conducting any business including establishing new businesses or expanding the already existing ones. This scheme addresses all kinds of businesses like small manufacturers, traders, retailers, wholesalers in the SME division focusing on young entrepreneurs primarily. Thus, in order to apply for this scheme the applicant should have a business degree or diploma or possess some relevant experience of the business he/she wishes to start.

‍Banks Offering Small Business Loans in Pakistan

‍Following is the list of some microfinance institutions and banks that offer loans to small businesses in Pakistan:

In short, providing loans to small to medium sized enterprises is a practical way to hold onto the procedures going swiftly. These loans are beneficial for the small business owners in a number of ways, for instance, giving an instant lift to the cash flow or covering the expense of high-priced equipment. Thus, financing small businesses is one of the major requirements for the upcoming growth and expansion of the state economy and the accomplishment of economic progress in Pakistan.


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