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What is a Business Loan?

Your business requires working capital to run and function smoothly. Lack of funds may sabotage the ambitious growth plans of your Business. Banks give you money to run your business, which you have to repay with interest, called a business loan.

A business loan is a loan that is availed for purely business purposes. The principal amount along with interest is to be repaid according to the terms and conditions of the business loan.

There are different types of business loans like secured loans, unsecured loans, microloans and so on.

  • Your business loan can be secured (you give a collateral) such as your Company inventory, land or machinery and avail your loan at a lower rate of interest.
  • Your business loan can be unsecured (you do not need to give a collateral).You are charged a higher rate of interest.

Features Of Business Loan

  • Business loans are easy to avail and involve minimal paperwork.
  • Business Loans have flexible repayment options.
  • You can avail a business loan in India in the range of Rs 50,000 up to Rs 75 Lakhs. These loans are approved quickly without any hassles.
  • Additional services like SMS, Web Chat, Phone Banking and so on are provided with business loans.
  • There are various types of business loans which can be availed based on the nature of the requirement. Few examples are loans for working capital needs, cash flow, business expansion and so on.

Benefits Of Business Loan

  • Business loans are usually repaid by the business entity and not the business owner. In the event of a bankruptcy, the business is liquidated and the proceeds are used to repay business loans. The owner is not held personally liable for the loss.
  • Unsecured business loans are available for needs like business expansion, working capital requirements, and so on.
  • Lenders usually don’t expect collateral, guarantors or security from business loan applicants.
  • There are some banks which offer customers, business loans in a minute. Such speedy approval helps customers procure funds without wasting much time with approval and processing of funds.
  • Some business loans can also be applied online.
  • Business owners have a variety of business loans to choose from, depending on their fund requirements. You may choose from short-term, mid-term and long-term loans for the business.
  • Borrowers are offered different repayment options. Business owners may choose to repay as per the business cash flows, they may increase or decrease EMIs or choose bullet repayments.
  • Business Loans allow you to purchase, lease and repair plant and machinery.
  • Facilitates technology up gradation and R&D.
  • Funds raw material purchases.

Business Loan interest rates:

Business loans are offered at interest rates ranging from 15-20% a year. A processing fee of up to 1-2% of the loan amount is charged.

Why avail Business Loan?

Money for Business

If you are a business owner you need money to finance your working capital needs. You can also take a loan to expand your business.

All kinds of Business

You get a business loan for sole proprietorship firm, partnership firm, private limited company or a public limited company.

Special Schemes

You get a special collateral free facility if your business is a Micro or a Small Enterprise. This is under the Credit Guarantee Fund Trust.

Women Entrepreneurs

Attractive lending schemes for women offered by banks. Women get loans at lower interest rates with no collateral.

 
 

Concepts & FAQ's Business Loan

What is Business/Commercial Loan?

The main aim of a commercial loan is to help traders, businessmen and professionals, start or expand their commercial activities. Such loans can be secured or unsecured. Loan amounts ranging from Rs. 500,000 to Rs. 10,000,000. The tenure of repayment can be up to 10 years.

Secured business loan: Secured business loans means that the entrepreneur keeps something as collateral against the loan amount taken. Collateral can be anything from raw material to finished products, land and building of the business to plant and machinery. If you have the collateral for the cash advance, you can have the money at relatively cheap rates and with much more flexible repayment options.

Unsecured Business Loan: Unsecured Business Loan, as the name explains is a type of loan that doesn't require collateral. It is typically at a higher rate of interest and is taken for a comparatively smaller tenure.

What are the steps involved to get Business Loans?

To get the best terms on business loans, jot down these steps:

Step 1:
Business loan is a business too. Narrow down lenders after doing your research on them. It is always good to start by building good relations with the lender. Discuss what the company is all about. Build the trust factor.

Step 2:
Decide what the money is needed for. Approach the lenders who grant the type of loan you seek. A loan may be required for many reasons like financing equipment, real estate, working capital needs and so on. In short, approach the right lender. Also decide where to avail the loan. This could be nationalized banks, commercial banks, private banks, financial institutions or NBFCs.

Step 3:
Decide on the amount of loan you seek. Overestimating or underestimating the loan amount can be a problem. It is also good to have your research documented.

Step 4:
Make sure you have a good Credit Score. Credit score decides the fate of your loan. A credit score of 700 is favorable and the business loan could be sanctioned.

Step 5:
Arrange and acquire all the documents needed for a loan application. Documents required are a business plan, business owners resume and financial statements like Profit & Loss A/c, Balance Sheet and Cash Flow Statements, three years ITR and so on.

Step 6:
Be prepared to pledge collateral. Some lenders may seek security to give loans.

Step 7:
Understand terms and conditions of the loan as stated by the lenders. Analyze them based on your business and financial needs.

Eligibility criteria to avail a Business Loan

  • You need to be at least 21 years of age and 65 years when your loan matures.
  • Your business needs to have a minimum turnover of INR 40 Lakhs.
  • You need to have a minimum experience of 3 years in the current business and at least 5 years of total business experience.
  • Your business should be making profits for at least 2 years.
  • You need to have a minimum annual income of at least INR 1.5 Lakhs for a loan of INR 15 Lakhs and at least INR 3 Lakhs for a loan above INR 15 Lakhs.You need to have a minimum Cibil score of at least 700.

What are the documents required to avail a Business Loan?

  • You require to submit owner's/business PAN card details.
  • Your Residence and identity proof.
  • Your 6 months bank statements.
  • Your latest Income Tax Returns along with the computation of income, Balance sheet and Profit and Loss account for the last 2 years.
  • Your proofs of the business such as trade licenses, sales tax certificates and so on.
Thinking of buying a Business Loan ?

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Frequently Asked Questions

Who are eligible for business loans?

Sole proprietorship businesses, partnerships and private limited companies are eligible to apply for business loans. These days even self employed but highly qualified people are provided with business loans.

What is the maximum term for which business loans are availed?

The maximum term of a business loan depends on its type. Business loans like Demand loans are granted for a term as low as a few days, whereas term loans are granted for tenure of up to 20 years.

In what form are business loans availed?

  • Secured and unsecured loans:
    A secured loan is a loan which is given against security or collateral. An unsecured loan, on the other hand, is given without any collateral or security. Secured loans have lower interest rates compared to unsecured loans.
  • Short-term loans:
    Short-term loans are business loans granted for a short period of time ranging from 3 months to 18 months.
  • Line of credit:
    This is a type of short-term business loan. This is a permanent loan arrangement between borrowers and their bankers. Such loans are useful in case of emergencies. Line-of-credit loans are designed for inventory purchases, to meet working capital needs, and not to meet bigger requirements like purchasing real estate or buying equipment. Line-of-credit loans generally have low-interest rates.
  • Equipment financing:
    This loan is designed specifically to fund the purchase of new equipment needed for the business. The same equipment will be pledged as collateral for the loan.
  • Balloon loans:
    These loans facilitate the payment of interest during the life of the loan, whereas, the principal repayment is due on the final day.These loans are best when you have to wait for a specific date to receive payment from a client and then make the repayment.
  • Interim loans:
    Interim loans are also called bridge financing. These are short-term loans with a high rate of interest, which are availed until the borrower gets permanent financing or fulfills an existing obligation.
  • Letter of credit:
    Letter of credit, commonly known as LCs, are used in international trade. This is a guarantee given by a bank to pay suppliers abroad in case the importer defaults on payments.

What are the eligibility requirements to take out a business loan?

Your personal details, such as how long you have been in business and your credit history, will be taken into account, along with other factors such as the income or projected income of your business, any assets, and more. You should check the eligibility requirements with each service provider that you consider, as they can vary from one service provider to another.

What are the risks associated with business loans?

Depending on the company and loan that you opt for you could be risking certain assets, or even part of all of your business if you do not keep up with repayments on the loan. It is therefore important to discuss your requirements thoroughly and ensure that your business can comfortably afford the repayments on the loan before you make any commitment.

How long does it take to receive funding?

From the date of application to actual funding, if a loan application is thorough and complete, the process can take from 7-21 days for loans under Micro and Small Business loans. Fast Track loans are processed within three business days.

How important is my credit history in availing a business loan?

Bank reviews the borrower's credit report and credit score in considering loan requests. In some cases they extend loans even when credit scores are lower than average. Is your credit history stopping you from thinking about a business loan? Call us on 080 67974000 and understand the eligibility criteria!

Can I go for a top-up business loan in the future?

Yes, you can go for a Top-up loan. The top-up loan allows you to borrow an amount over and above your existing loan. Such loans are given based on the repayment ability and past records of the borrower. The tenure of top-up loans changes from bank to bank. The interest rates on top-up loans are slightly higher.

Can I go for the early settlement of my loan?

Yes. You may go for an early settlement of your loan. This would be subject to pre-closure charges, as applicable.

What kind of businesses is not eligible to apply?

Businesses like sexually oriented businesses, gambling establishments, businesses with over 51% of revenues generated from liquor sales, businesses organized for religious purposes, residential builders and speculative real estate investments are not eligible to apply for loans. To know the various kinds of Business Loan available, call us on 080 67974000 and ask our experts!

What are the types of Business/Commercial loans?

Professional loans: Leading banks are catering to the need of self employed professionals like Doctors, Chartered accountants, Interior Decorators, Architects, Company Secretary Etc. by offering them professional loans at lucrative rates. Manufacturing/ trading/processing units are not eligible for such a loan. These loans are unsecured in nature.
Trade Loans:Present day trading involves heavy initial investment and pooling in continuous financial resources. Banks are providing trade loans to traders / businessmen to help them set up or expand their business.

 

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How to get a collateral free loan? | Money Doctor Show English EP 211

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#6 Plan a Presentation and Make the Appointment

Wednesday, May 30, 2018, 11:40 AM

Prepare a presentation of your business plan and application for your loan officer. Be sure and include an Executive Summary. Many loan officers read the Executive Summary first and decide whether they are interested based on that. Make an appointment with your loan officer and request enough time to do a short presentation, with visual aids, based on your business plan. Be short, brief,

#5 Prepare Your Business Plan

Wednesday, May 30, 2018, 11:36 AM

This may be your most important step. In order to get a small business loan from just about any lender, you have to prepare a good business plan. The business plan is in addition to the loan application required by the financial institution. It will also include a statement of collateral or the type and value of assets you will use to secure the loan.

#4 Start Reviewing Your Borrowing Options

Wednesday, May 30, 2018, 11:33 AM

Look at the commercial banks available to you. Don't just go to the large, national commercial banks. You may have a better chance for a loan at the smaller regional commercial banks. There are other options such as microfinance loans that make loans to startups. If one lender turns you down, another may say yes to the same loan application so keep trying.

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