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There are times when every entrepreneur or businessman thinks of starting or expanding a business. Carrying out such endeavors need a significant amount of financing and this tends people to think of getting a Business Loan. A business loan can be of great help for such purposes and can be easily disbursed after the required paperwork. Today, there are numerous financial institutes in India that are offering Business loans at good interest rates. But with so many options available it becomes viable to choose the right one that suits your needs best. So, if you want to know more about it, then continue reading till the end.

What is a Business Loan?

A business loan is a financing option provided by banks and NBFCs to support the financial needs of self-employed individuals and businesses. Individuals, MSMEs, business owners, entrepreneurs, professionals (CAs/Doctors), and a variety of other business organizations can use it.

Secured loans and unsecured loans are the two most common types of business loans. Secured loans are those that require a borrower to deposit collateral or security with the lender in order to obtain a business loan. Unsecured loans, on the other hand, do not need the submission of any collateral or security to the bank, NBFC, or any other lender.

Banks/NBFCs provide both secured and unsecured business loans, that includesTerm Loans (Short-term/Long-term), Working Capital Loans, Cash Credit, Overdraft, Letter of Credit, Bill/Invoice Discounting, Equipment Finance, Machinery Loans, POS Loans, Loan under Bank Guarantee, Loan under Govt. schemes, etc.

The lowest loan amount available is Rs. 30,000, which can be obtained from Small Finance Banks (SFBs), Regional Rural Banks (RRBs), or Micro Finance Institutions (MFIs). Leading commercial and public sector banks offer collateral-free business loans of up to Rs 1 crore to borrowers. Small business loans with low-interest rates are also available for MSMEs and startups.

Business Loan eligibility

To obtain a business loan from a lender, you must first determine whether you match the lender's eligibility requirements. The following are the general eligibility requirements for business loans:

  • Self-employed professionals usually include doctors, chartered accountants, company secretaries, architects, etc. This is only applicable to applicants who have proof of qualifications and are currently employed in their field.
  • Self-employed non-professionals are usually known as traders, manufacturers, etc.
  • Entities include partnerships, limited liability partnerships, private limited companies, closely-held limited companies, etc.
  • A minimum turnover of Rs.40 lakh may be required of the company.
  • A minimum of three years in the current industry is required.
  • A total of five years of business experience is necessary.
  • For the past two years, the company should have made a profit.
  • It is necessary to have a minimum annual income (ITR) of Rs.1.5 lakh.
  • Applicants must be between the ages of 25 and 55 to be considered.
  • IT returns for the last 1 year should have been filed by.
  • Only specific cities and municipalities may be eligible for business loans.

Documents required to apply for a Business Loan

Before applying for a business loan, you need to submit the following documents to the loan provider:

  • PAN Card for Firm, Company, or Individual.
  • Proof of ID, in the form of, a copy of Aadhar Card, Passport copy, Voter’s ID copy, or driving license.
  • Proof of address, in the form of, copy of Aadhar Card, Passport copy, Voter’s ID copy, or driving license.
  • Bank statement (last 6 months)
  • The Latest ITR along with computation of income, balance sheet, and P&L account for the last 2 years. All financials must be CA certified or audited.
  • Proof of continuation (ITR/Trade License/Establishment/Sales Tax Certificate)
  • Sole Proprietorship Declaration or certified copy of Partnership Deed.
  • A certified true copy of Articles of Association and Memorandum.

Importance of Credit Score in Getting a Business Loan

In the loan approval process, your credit score is very important. It shows your credit history as well as the payback schedule for any available funding. Financial organizations generally consider any credit score of 750 or higher to be good. However, if your credit score is 650 or higher, some NBFCs, Small Finance Banks, and Micro Finance Institutions may still approve your loan application.

The credit score eligibility determined by financial institutions can be different for Individuals, self-employed professionals, MSMEs, retailers or manufacturers, and other business organizations. Different ranges of credit score are needed by banks/NBFCs, from borrowers who need different types of business loans, such as term loan, working capital loan, letter of credit, overdraft, POS loans, etc.

The credit score range set by the lender for a particular loan product will differ from application to applicant and loan type to loan type. People with New-to-Credit status should start building a credit score for loan approvals, as applicants with low credit scores are more likely to be denied. Startups, that are new to the financing market and going to start a new business, require even higher credit scores to obtain business loans. To improve your chances of getting a loan, acquire and maintain an excellent credit score.

Features of Business Loan

Before applying for a business loan to initiate a new business or expand the existing one, you need to know about the features of a business loan. Given below are some features of a business loan:

  • A business loan's corpus is determined by a number of parameters, including the amount of profit made annually, the business's valuation, the business's operating industry, and the number of years it has been in operation.
  • These loan applications are typically granted swiftly and without any complications. When it comes to business loans, most banks and financial institutions promise secured lending solutions to their customers.
  • Business loans have become one of the most popular solutions for companies to satisfy their financial demands since they offer flexible repayment options and need little documentation.
  • Unsecured business loans allow companies to fund specific needs while repaying the loan in manageable installments (equated monthly instalments). These loans can be used for a variety of things, including business growth, working capital, and so on.
  • Banks and financial institutions that provide business loans also offer doorstep services to their customers. Furthermore, many Indian business loan lenders do not require collateral, guarantor, or security from the applicant.
  • Some banks provide consumers with the ability to check their eligibility for a business loan in under a minute, either online or at one of their branches. Customers don't have to waste time waiting for banks to respond to their loan applications because of these quick approvals.
  • SMS, Web Chat, Phone Banking, and other services are available with business loans. Some banks even give their self-employed customers access to bigger loan amounts.
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Thus, if you require finances for business purposes, assess your possibilities and apply for a business loan as soon as possible.

Things to Consider When Applying For a Business Loan

Given below are some critical things that you need to know before applying for a business loan:

Work out how much your business needs: Lenders typically offer large sums of money to business owners and self-employed individuals. As a result, you must examine your financial needs and apply for a loan that will assist you in funding your business. It's never the best idea to borrow more than you need because payback could be difficult.

Research the types of business loans: As part of their product mix, several lenders provide more than one business loan. The terms, loan amounts, loan tenures, and repayment alternatives for these loans are likely to be diverse. Furthermore, certain business loans may be tailored to specific sectors or segments of society, allowing members of these groups to benefit

from cheaper interest rates or better terms. As a result, conduct your homework on the various forms of business loans accessible in the Indian market and make an informed decision.

Check your credit score: Your credit score shows how creditworthy you are. People with strong credit are thought to be less prone to default on their payments. As a result, lenders will normally verify your credit score before granting your loan. A credit score of at least 750 is recommended to boost your chances of being approved for a loan at a reasonable interest rate. (Before applying for a business loan, verify your credit score and, if necessary, take actions to improve it.)

Understand the repayment terms: The borrowed amount is usually repaid in Equated Monthly Installments (EMIs) for business loans. Lenders usually consider your repayment capacity when determining an appropriate loan term and monthly EMI. You should verify that you comprehend your lender's repayment terms as an applicant. Make sure you don't fall behind on your EMI payments, as this can ruin your credit score.

Check the charges: Interest rate, processing fee, preclosure fee, documentation charges, part-payment fee, default fee, and other charges are all assessed on business loans. Be sure to look into the fees or charges that different lenders impose and how they affect the cost of your applied loan.

FAQ

In most circumstances, no security or collateral is necessary to obtain a company loan, though a comprehensive examination of your documentation is required to confirm this. You can review the lender's terms and conditions to see what is commonly accepted if you are needed to present security or collateral.

Yes, business loans are available to all practicing professionals who can show proof of qualification.

A business loan can be used for any of the following or related purposes: Small business finance Working Capital finance Home renovation Business expansion finance

Yes, business loans are available to all practicing professionals who can show proof of qualification.

Yes, business loans are available to all practicing professionals who can show proof of qualification.

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