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What is a Business Loan?

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.

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.

Hero Fincorp Business Loan
Faircent Business Loan
HDFC Bank Business Loan
IDFC Bank Business Loan
ICICI Bank Business Loan
Bajaj Finserv Business Loan
Tata Capital Business Loan
Poonawala Finance Business Loan
Lendingkart Business Loan
Loan Tap Business Loan
Fusion Business Loan
Growth Source Business Loan
Unity Bank Business Loan
Ashv Finance Business Loan
Piramal Finance Business Loan

Eligibility Criteria for Business Loan according to ReferLoan

The Business Loan eligibility criteria always depend upon many factors and these eligibility criteria can be different according to different Banks and NBFCs as well.

Here are some eligibility criteria for a Business loan, and if you’re are facing any doubt – click on APPLY and fill out the form where ReferLoan Business loan expert will contact you and solve them.

  • The age of the applicant plays a major role while applying business loan for eligibility and the minimum age decided is 25 Years and the maximum age should not be more than 60 Years. These can be varied from different Bank and NBFCs policies.
  • The following are eligible for business loans they are
  • The following are eligible for business loans they are
    • Proprietorship firm
    • Partnership firms
    • Private Limited Companies
    • Self Employed Individuals
    • Professionals who are doing manufacturing or service or any kind of import or export business.
    • The minimum business vintage required is 2 Years (or more) and not less than that.
  • An Income Tax Returns (ITR) is required (Years to be decided by different Banks and NBFCs)
  • The total business turnover includes – minimum business turnover and a minimum annual turnover (the years will be decided by different Banks and NBFCs)
  • 1 Year profit-making company or Firm is eligible or more depending on banks and NBFCs.
  • The minimum CIBIL required for applying for a business loan is 700 but there are few NBFCs who do Business loans with the CIBIL score of 650 as well with a high rate of interest.

  • Basic Documentations for Business Loan Required from Bank

    Here are some basic documents to be required while applying for a Business Loans and keep these documents handy. There might be some more documentation required which can be asked by ReferLoan experts, some basic documents are as follows:

    • Proper Address proof of an Applicant: In address proof, the basic documents are: Aadhaar Card, Voter’s ID card, Driving License, rent agreement, utility bill, etc.
      • If the applicant is staying in rent, then the applicant needs to provide a proper “rent agreement”
      • If the applicant is staying in their own residence, then “latest utility Bill”
    • KYC or Know Your Customer Documents: these documents consist of: PAN Card copy, Voter’s ID Card, Driving License. Aadhaar Card, etc.
    • Business Proof which consists of GST Registration, License Trade, Drug License, Registration Under Shop ACT, etc.
    • Income Proof Documents which consist of Balance sheet and Profit and Loss Accounts that need to be audited by an Auditor and also with Auditor’s report.
    • If in case of partnership firm then “partnership Deed” is required
    • If in case of Company then
      • Articles of Association
      • Memorandum of Association
      • Board Resolution
    • Company or Partnership firm identity like PAN Card.
    • If a company has a commercial vehicle, then National and State Permit.

    Details Documents of Business Loan

    These are the document if BUSINESS IS LESS THAN 1 LAKH

    1. For PROPRIETORSHIP CONCERN

    Basic Documents of Main Applicant

    • KYC of Proprietor (Passport Size Photo, Aadhar Card & Pan Card Copy)
    • Latest Utility Bill of Residence if Owned (If Rented then Rent Agreement along with Latest Utility Bill)

    Co-Applicant KYC

    • KYC of Co-Applicant (Passport Size Photo, Aadhar Card Copy & Pan Card Copy)

    Business Vintage Documents

    • Copy of GST Registration
    • 1-Year-Old Business Vintage Proof (Any Registration or ITR 4)
    • Office Address Proof Latest Utility Bill (If Rented Rent Agreement Required with the latest utility bill


    2. PRIVATE LIMITED COMPANY

    Basic Documents of Main Applicant

    KYC of Company (Pan Card of Company+ MOA & AOA & Certificate of Incorporation of Company)

    Co-Applicant KYC

    • KYC of all Directors and Major Shareholder of Company (Passport Size Photo, Aadhar Card & Pan Card Copy)
    • Latest Utility Bill of any of its Director Residence if Owned (If Rented then Rent Agreement along with Latest Utility Bill)

    Business Vintage Documents

    • Copy of GST Registration
    • 1-Year-Old Business Vintage Proof (Any Registration)
    • Office Address Proof Latest Utility Bill (If Rented Rent Agreement Required with the latest utility bill)
    • List of Directors and Share Holders on Company Letterhead as on Date

    3. Partnership Firm/LLP

    Basic Documents of Main Applicant

    • KYC of Partnership Firm/LLP (PAN Card Copy of Firm/LLP +Partnership Deed/LLP Deed of Firm/LLP)

    Co-Applicant KYC

    • KYC of all Directors and Major Shareholder of Company (Passport Size Photo, Aadhar Card & Pan Card Copy)
    • Latest Utility Bill of any of its Director Residence if Owned (If Rented then Rent Agreement along with Latest Utility Bill)

    Business Vintage Documents

    • Copy of GST Registration
    • 1-Year-Old Business Vintage Proof (Any Registration)
    • Office Address Proof Latest Utility Bill (If Rented Rent Agreement Required with the latest utility bill)
    • List of Directors and Share Holders on Company Letterhead as on Date

    i. Financial Documents

    • Last 3 Years ITR along with Computation of Income of Applicant
    • Last 3 Year ITR along with Computation of Co-Applicant
    • Form 26 As Last 2 years
    • Audit Report + Tax Audit Report last 3 years (if available)
    • Last 12 months GSTR3B returns

    ii. BANK STATEMENT

    • All Current and Limit Accounts Banking Last 12 months in PDF Format of Applicant
    • Saving Account bank Statement of Applicant & Co-Applicant Last 12 months in PDF format

    iii. OTHER DOCUMENTS

    • All running loan sanction letter with repayments schedule of applicant and Co-Applicant.
    • If EMI is not on time, then SOA (Statement of Account) is also required.
    • 2 Business reference along with Contact
    • Contact detail of the person who will attend PD along with email address.
    • List of Debtors and Creditors on Letterhead of last 2 years and latest. If BL case> 1 Cr.

    These are the document if

    BUSINESS IS FOR 1 LAKH OR ABOVE


    4. For PROPRIETORSHIP CONCERN

    Basic Documents of Main Applicant

    • KYC of Proprietor (Passport Size Photo, Aadhar Card & Pan Card Copy)
    • Latest Utility Bill of Residence if Owned (If Rented then Rent Agreement along with Latest Utility Bill)

    Co-Applicant KYC

    • KYC of Co-Applicant (Passport Size Photo, Aadhar Card Copy & Pan Card Copy)

    Business Vintage Documents

    • Copy of GST Registration
    • 1-Year-Old Business Vintage Proof (Any Registration or ITR 4)
    • Office Address Proof Latest Utility Bill (If Rented Rent Agreement Required with the latest utility bill

    5. PRIVATE LIMITED COMPANY

    Basic Documents of Main Applicant

    • KYC of Company (Pan Card of Company+ MOA & AOA & Certificate of Incorporation of Company)

    Co-Applicant KYC

    • KYC of all Directors and Major Shareholder of Company (Passport Size Photo, Aadhar Card & Pan Card Copy)
    • Latest Utility Bill of any of its Director Residence if Owned (If Rented then Rent Agreement along with Latest Utility Bill)

    Business Vintage Documents

    • Copy of GST Registration
    • 1-Year-Old Business Vintage Proof (Any Registration)
    • Office Address Proof Latest Utility Bill (If Rented Rent Agreement Required with the latest utility bill)
    • List of Directors and Share Holders on Company Letterhead as on Date

    6. Partnership Firm/LLP

    Basic Documents of Main Applicant

    • KYC of Partnership Firm/LLP (PAN Card Copy of Firm/LLP +Partnership Deed/LLP Deed of Firm/LLP)

    Co-Applicant KYC

    • KYC of all Directors and Major Shareholder of Company (Passport Size Photo, Aadhar Card & Pan Card Copy)
    • Latest Utility Bill of any of its Director Residence if Owned (If Rented then Rent Agreement along with Latest Utility Bill)

    Business Vintage Documents

    • Copy of GST Registration
    • 1-Year-Old Business Vintage Proof (Any Registration)
    • Office Address Proof Latest Utility Bill (If Rented Rent Agreement Required with the latest utility bill)
    • List of Directors and Share Holders on Company Letterhead as on Date

    i. Financial Documents

    • Last 1 Years ITR along with Computation of Income of Applicant
    • Form 26 As Last 1 years
    • Last 12 months GSTR3B returns

    ii. BANK STATEMENT

    • All Current and Limit Accounts Banking Last 06 months in PDF Format of Applicant
    • Saving Account bank Statement of Applicant & Co-Applicant Last 06 months in PDF format

    iii. OTHER DOCUMENTS

    • All running loan sanction letter with repayments schedule of applicant and Co-Applicant.
    • If EMI is not on time, then SOA (Statement of Account) is also required.

    Documents Required in Business Loan for Professionals

      • KYC of Applicant & Co-applicant
      • Owner Ship Proof Latest Utility Bill of Residence & Office if owned. If Rented, Rent Agreement of Office and Residence along with latest Utility Bill
      • Copy of ITR along with computation of last 3 years of Applicant and Co-Applicant. (2 Year may also be considered)
      • Last 12 Month Saving Bank Statement in PDF of Applicant & Co-Applicant Last 12 Month Current Bank Statement in PDF of the applicant if any
      • Copy of MBBS/MD degree for Doctors or CA degree for Chartered Accountant, Or Certificate of Practice
      • Visiting Card of Applicant (if any)
      • Copy of GST Registration if any
      • Copy of Form 26AS of last 2 Year
      • All running Loan with Sanction letter if Any

      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.

      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.

      FREQUENTLY ASKED QUESTIONS

      Have a question? We've got answers!

      No, you need not have collateral to get a business loan.

      Postdated cheques, Electronic Clearance Service (ECS), and Direct Debit are all options for repayment of a business loan.

      Typically, you need to maintain a credit score of 750 or higher to get a business loan without any hassles. A poor credit score can lead to the rejection of your loan application.

      After evaluating your documents and eligibility criteria, the lending institution will disburse your business loan within 72 hours. However, this time can vary from one lender to another.

      No, you can’t make part payments for business loans.