BUSINESS LOAN
Businesses need ample amount of investment to fund for start-up expenditures or pay for business extensions. For such purposes, companies take out business loans for their financial assistance. It is a debt which a company is obligated to pay back within a specific tenure according to the terms and conditions of the granted loan. Start-up Business loans can be taken for a variety of essential requirements like starting up a new firm, business expansions, dealer and vendor financing etc.
The major benefit of business loans in India is that it does not require any collateral or security and most of the banks sanction business loans with minimal pre-payment charges. Another benefit is that if there is a failure of repaying the loan, then the business owner will not solely face the burden of penalties but the whole company will be liquidated in order to clear the business loan.
Features of Business Loan
Business Loan is a great option when it comes to expanding your existing Business or starting something new of your own. There are some salient features of Business Loan which you should know before applying for one, which includes the following -
Collateral Free Loan
Business Loans are unsecured loans which mean that no security or collateral is required to apply for a Business Loan. One does not need to provide any asset like a car or a house to avail a Business Loan. The financial lenders review the Loan Applicant’s credit history, age, location, income details of the past few years and only then the loans are offered.
Fixed Interest Rate
Business Loan Interest Rates are fixed, which means the Interest Rate will not change for the entire Loan Tenure. The Interest Rate of Business Loan starts from 14.99% onwards.
Flexible Repayment tenure
The Loan Applicants can get a flexible repayment tenure up to 5 years, making it more preferable over other Loans.
The loan amount that one can avail in business loan can be up to Rs 50 Lakh. It mostly depends on the financial credibility of the borrower before offering the business loan.
Minimal Paperwork and Fast Processing
Since loans can be easily applied online, it requires minimal paperwork. Only the necessary documents are required to apply for a business loan. Once the loan application is approved, the processing of the loan amount is followed by the disbursal.
Interest Rates
Business Loan amount can be from Rs.3 lakhs onwards
Simple and easy documentation
Business Loan tenure can be from 12 months to 48 months
Business loan interest rates start 14.99% onwards which depends on the eligibility of the applicant
Categories of Business loan
Overdrafts: An overdraft means overdrawing from a current account. In simpler words, an account holder takes out more money that has been deposited in the account. An agreed rate of interest will be charged if the overdrawn amount is within the limits of a preceding agreement.
Term loans: Currently many types of term loans are available such as short term loan, long term loan and other intermediate loans. An entrepreneur can avail these loans according to his/her requirements and economical position. Mainly the loan tenure for a short term loan is 3 years and for long term loan it is 10-15 years, there will be some variations in the interest rates of both the tenures.
Term loans are divided into two parts that is unsecured business loans and secured business loans. In secured loans, the collateral or security can be a certain property, machinery or a business ground and they will usually possess lower interest rates as compared to an unsecured one.
Bill discounting: This process gets you instant cash back on your large purchases and you get discount on the credit sales. All you need to do is to submit the important documents which validate your transactions like invoices, transportation receipts, lading bills etc.
Letter of credit: A letter of credit is issued by the buyer’s bank which declares that a seller will receive the payment in full when all the terms and conditions regarding sale and delivery have been completed. This situation generally arises in international business finance where seller and buyer are unknown to each other, therefore the business transactions is done on the basis of bank’s credit worthiness.
The important documents which a seller has to present in order to get the payment consist:
Commercial documents such as invoic and lading bills
Transportation documents
Insurance certificate
Official documents such as origin certificate, inspection certificate, commercial and legal documents
Special schemes for women entrepreneurs
Nowadays, banks are giving attractive schemes to women entrepreneurs. These lending schemes are exclusively for women and it gives them relief in terms of interest rates and collateral. Some of banks also have special cells for women entrepreneurs where they provide them business consulting, training and counselling along with avenues for the marketing and showcasing of their products. They also show them the realistic view of their business by giving references of the similar businesses.
Women entrepreneurs whose ownership is less than 50 percent in the company are not allowed availing the benefits of the women’s special schemes.
Mudra Yojana:
This is a special a government business loan scheme for small and medium businesses. Though the funding is provided through the banking institution, it is the government of India who provides the required cash to the bank. Mudra loan scheme is specifically designed to make government loans for small businesses available to all over India.
Eligibility Criteria for Business Loan
If you need to apply for business loan and want a bank to consider your loan application, then it is necessary for you to meet the eligibility criteria of the bank. If you meet all the necessary eligibility requirements of the bank loan for business, then you are more likely to get the loan approval. So before applying for a business loan, you must check the following eligibility criteria:
For availing a business loan, you must one of the following:
Self-employed individual
Limited or private limited firm
Manufacturer or service provider
You must be aged between 21 to 65 years
You should be in business for at least 3 years
Your business turnover must be at least 50 lakhs per annum with minimum 2 lakhs of profit
You must submit the last 3 years of ITR statements
Your business partner can be a co-applicant in your business loan application (which would increase the probability of getting a loan with acceptable tenure and interest rate)
Documents Required for Business Loan
Here are the following documents which have to be submitted by an applicant who is going to take a business loan:
Last 3 years Income Tax statements
Bank account statements
Business proof
Practice certificate
Proof of ownership of the possessions which are used for business purposes
Your recent photographs
Identity proofs such as Aadhar Card, Voter ID Card, PAN Card
Residence proof
KYC documents of a co-applicant
Business Loan One Can Get
The business loan depends on the annual profit of a business and number of years you are into that business. It also checks the cash flow and other aspects of revenue generation. Once the bank considers all the major factors, it decides the eligibility of loan amount which a business can get. The main criteria of approving a business loan is how much profit a business makes and how the borrower will manage to repay the EMIs and other expenses related to the business.
Business Loan Approval
Like any other loan, business loan also analyses your credit worthiness by checking your reliability and repayment ability. For this purpose, banks generally look at your past financial history and go through your business records.
The people who are willing to get a start-up business loan might face difficulty in getting a loan because it will be tough for the bank to believe that you are a trustworthy client for them. In that case, banks usually examine your previous financial background, credit history, liabilities, other debts (if any), education and your business plan. A well planned and researched business plan shows your dedication towards your business and the capital money that you have invested in your business personally is also considered by the bank.
Banks are even going to start off schemes of approving loans on the basis of good credit score and loan record of their existing loans. But taking many loans also can also restrict your credit worthiness and would create a negative impact of your liabilities.
Having insurance with your properties and other equipment’s acts like a cushion for your bank to sanction a loan. As banks are always concerned about the security and risk factors attached to a business, some of the banks even insist their clients to get insurance before approving their application of loan for small business.
Therefore, a well-planned and professional plan is always important before approaching a bank for a loan. You should be prepared and do a SWOT analysis of your business plan, and have thorough information about the marketplace of your products and how you are going to lead there.
Banks are also going to focus on medium and small business loans and long term capital loans as well as the expansion of credit amenities to new areas such as less developed cities and states in order to promote the comprehensive growth of such small businesses.
The following is the handy checklist of things business loan requirements; you must keep in mind before applying bank loan for your business:
You must keep a favorable credit score that is between 700-900 points
Ensure that you meet the eligibility criteria, business loan requirement and have all the necessary documents ready
Have sufficient funds ready, in case the lender needs you to put something forward in advance
As you are applying for business loan, you must maintain an inclusive database of the company’s financial situation and past performance along with its cash flow statement.
If you are applying for business loan for new business, then you must focus on the ideas and presentation.
Setting up a new business or putting a step forward for your existing business is highly ambitious and you need a lot of courage and right things to keep going in this competitive world. With the above checklist, you will be able be go in right direction of acquiring the necessary funding for your business.
Pros and Cons of Business Loan
Pros of business loans
Business loan does not require any collateral
Business loans are unsecured loans which means it does not require any asset like a house, car or jewelry to apply for a loan.
Minimal paperwork and quick processing
Business loan does not require lot of paperwork. Only the KYC documents along with the necessary business documents are mandatory to apply for business loan and since the entire process of applying for a loan is online, the processing time is quick with no manual intervention.
Business loans cover most of the business purposes
Business loan covers all kinds of business purposes be it day to day financing, daily business operations or even large scale business manufacturing - business loan caters to all the financial needs.
Cons of business loans
Interest rate
Since business loans are unsecured loans, the interest rate offered on business loan is slightly higher just like in the case of personal loan. However, there are some NBFCS that might offer a little low interest rate which one may want to consider.
Loan eligibility
The business loan eligibility is slightly stringent as compared to other loans. The banks and non-banking financial companies have different eligibility criteria for business loan.
Poor credit history
If your financial profile has a bad credit history and the business has suffered losses more than profits, then there might be a chance that the financial lenders will reject your loan application. So, before you apply for a business loan, you must evaluate your credit score and rectify the past errors, if possible.
Top 5 Business Loan Providers in India
A detailed research helps in knowing the features and benefits of Business Loan. Below are the top 5 providers of Business Loans in India.
Top 5 Business Loan Providers
Bank/Institution (HDFC Bank)
Type of Business Loan (Unsecured Business Loan)
Features (1. Benefit of business loan balance transfer
2. HDFC Offers overdraft facility along with flexible tenure options
3. HDFC Business Loan also offers premium loan cover)
Loan Amount (Rs 40 Lakh (can go up to Rs 50 Lakh in selected locations))
Bank/Institution (Bajaj Finsev)
Type of Business Loan (Unsecured Business Loan)
Features (1. Unsecured business loan
2. No collateral required to apply for a business loan
3. Bajaj Finserv offers business loan at attractive and affordable interest rates)
Loan Amount (One can avail Business Loan up to Rs 30 Lakh)
Bank/Institution (State Bank of India)
Type of Business Loan (1. Asset Backed Loan
2. Asset Backed Loan Commercial Real Estate
3. E dealer finance scheme
4. E vendor finance scheme
5. Fleet Finance
6. Open Term Loan
7. SME eBiz Loan
8. PM Mudra yojana
9. Stand Up India
10. Simplified Small Business Loan
11. SME Credit Score
12. Warehouse Receipt Funding)
Features (1. Business Loan offered for the purpose of manufacturing, services, whole sale retail etc
2. No security or collateral is required for business loan
3. SBI Business Loan is also offered for path labs, diagnostic centres, nursing homes etc.)
Loan Amount (The Loan Amount varies from product to product.)
Bank/Institution (Axis Bank)
Type of Business Loan (Unsecured Business Loan)
Features (1. No collateral or security is required
2. Business Loan Balance Transfer option is available
3. Axis Bank offers simplified access and minimal documentation)
Loan Amount (Axis Bank offers Business Loan up to Rs 50 Lakh)
Bank/Institution (ICICI Bank)
Type of Business Loan (1. Working Capital Finance
2. Term Loans
3. GST Business Loan
4. Insta OD
5. Loans for new Entities
6. Collateral Free Loans
7. Loans without Financials
8. Finance for Importers and Exporters
9. Secured Loan for Merchant Establishment against Credit Card swipes)
Features (1. ICICI Bank offers flexible repayment tenure
2. The tenure of business loan is up to 7 years
3. Collateral free term loan is also offered under the CGTMSE scheme.)
Loan Amount (The Loan Amount varies from product to product.)
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