Business Loan

Vikram Sharma

Last modified:Aug 30,2019 05:05:53 pm

Business Loan are acquired for small scale and other business activities in order to meet the needs of the business. Business loans are provided by public sector banks, private sector banks and other non banking financial institutions. Business loan types, interest rates, eligibility, requirements, etc are given in the content below.

Overview of Business Loans

India is a largest market for blooming entrepreneurs. Entrepreneurship activities ranges from small to large scale business across India. Thus, Bank and other non-banking Financial institutions provide business loans for those budding owners of business and also for large businesses. Business loans can be either secured or unsecured and most of the business loan doesn’t require a collateral. More details on Business loans are briefed below in this article and few important details are given in the below table.

Interest rates

Varies between 17% and 25%

Loan tenure

12 months - 48 months

Loan amount

Varies according to many factors.

What are the Types of Business Loan?

Business Loans are provided under two broad category. 
Secured Business Loan - With a secured loan, the borrower pledges an asset (such as plant, equipment, stock or vehicles) against the debt. If the debt is not repaid, the lender may claim the secured asset.
Unsecured Business Loan - Unsecured loans do not have collateral, though the lender will have a general claim on the borrower’s assets if repayment is not made.

What are the Categories Business Loan are Further Classified?

Based on the use of fund acquired through business loan, it can be categorised into various categories as follows.
Term Loans - Term loans are provided for acquisition of long-term fixed assets like machinery, building or land. Term loans have a fixed repayment schedule and an interest rate that is either fixed or floating. Loan tenure ranges from 2-10 years, but it is advisable to go for longer tenure.
Loan against Property - Loan against property is acquired by giving residential or commercial or vacant land as collateral security to the bank. There are no restrictions on usage of funds as the loan is sanctioned against property. Loan tenure is from 3 to 15 years.
Loan against Shares or Financial Securities - Funds raised by pledging shares or financial securities. Loan tenure is renewed every 12 months.
Cash Credit Facility - Cash credit facilities is usually secured by pledging current assets of the organization like inventory or receivables. Loan tenure is renewed every 12 months.
Bank Guarantee - Bank guarantee is a promise from a bank that the liabilities of a debtor will be met in the event that the debtor fails to fulfill contractual obligations.

What are Eligibility Required to Obtain Business Loan?

Whether a small scale or a large scale business, certain eligibility criteria has to be met to in order to avail business loan. There are eligibility calculators available online which helps applicants to know their eligibility of obtaining the business loans by providing certain important details. Check the criteria given below.
  • Aged between 25 and 65 years
  • Profitable business for three years
  • At least Rs 40 lakhs turnover per year
  • Growing turnover
  • ITR for at least Rs 3 lakhs
  • CA audited financials
  • Business Loan amount up to Rs 50 lakhs
  • Loan for business - period up to 3 years
  • Any form of ownership

What are Documents Required to Obtain Business Loan?

There documentation that is done for any loan type but the documents needed differ for each type of loan. Submit the documents with updated information in the documents. Find below the documents required for applying a business loan.
  • Application form with passport-sized photographs
  • KYC documents
  • ITR returns for two years
  • Profit/Loss statement and balance sheet for two years
  • 6-month bank certified bank statement
  • Ownership documents
  • Proof of business loan documents issued by statutory authorities

How To improve Your Chance of Getting a Business Loan Approved?

Secured or unsecured loans, before applying you should make a checklist and make your chances of loan approval more. Pre-planning helps you to avoid unnecessary hassles at the time of applying for business loan. Keep all the necessary documents ready with updated current personal information. Check the points below to improve your chances of loan approval.
  • First and foremost, one should maintain a good credit score. When comes to company, it should have a good credit history.
  • Avoid multiple loan applications
  • Choose your bank wisely
  • Check your business existence
  • Apply for loan based on your repayment capacity
  • Maintain proper accounts of your business
  • Have a regular check of your CIBIL Score

What are the Checkpoints that Bank Consider Upon You?

There are certain criteria a bank checks upon you it provides you with the loan. Similarly, before applying for a Business loan either the individual or the company should do a good market research about the offers provided by the bank and other criteria and then go in for applying. Here are few checkpoints to review.
  • Interest Rates provided by the bank
  • Processing Fees
  • Prepayment and Foreclosure Charges
  • Other Related Charges
  • Loan Tenure offered
  • Offers on EMI Options (Flexi EMIs)
  • Customer Relationship

Business Loan for Start Ups

If someone is looking to start a new business, they can approach the bank for Business Loans for Startups. All that the bank requires will be a good credit score and proper repayment on Interest and EMIs. Those starting with new business are usually new for the market, sometimes young or sometimes with low revenue history, in such cases banks look for a good credit scores which reflects their repayment capacity and repayments on time. Business loans for startups can either be secured or unsecured.

More Information on Business Loan 

Business loans are absolutely a great help to flourishing entrepreneurs who aspire to start a business. Before applying for business loan, one should have done a SWOT analysis of the business plan and also have complete information about the business as well as about the loan schemes available in the market. More information on business loans are listed below.
  • When a borrower becomes bankrupt, unsecured creditors will usually realise a smaller proportion of their claims than secured creditors.
  • Thus, secured loans will generally have lower interest rates due to the above said reason on unsecured loans.
  • Small business lenders may waive the personal guarantee requirement if the business has strong business credit scores and revenue.
  • Many lenders require principals with 20% or greater ownership in the business to provide a personal guarantee.
  • Small business lenders may waive the personal guarantee requirement if the business has strong business credit scores and revenue.

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