The foremost need of any entrepreneur is to see his/her business develop, expand and thrive. To satisfy this desire, business owners select business loans and meet their budgetary requirements. However, getting moment reserves isn’t generally possible, as banks and NBFCs take their time in deciding whether to endorse loan or not.
Business loans are majorly availed for purposes like business expansion, purchase of machinery or plant, investment in infrastructure, recruiting staff, look after inventory, etc. Further we have discussed all the relevant aspects of business loan for in-depth understanding.
Business Loan Interest Rates
Business loan interest rates start from 14.99% onwards which likewise depends on the eligibility of the candidate:
- Least loan sum offered is Rs. 5000
- Greatest loan sum offered goes up to Rs. 2 crore (can exceed depending on the requirements)
- Minimum repayment period is a year
- Greatest repayment period can go as long as 5 years
Eligibility Criteria to Apply for Business Loan
Least age – 18 years
Greatest age – 65 years
Business Loans are offered to the accompanying entities:
- Sole Proprietorship Firms
- SMEs, MSMEs and Large Enterprises
- Partnership Firms involved distinctly in Manufacturing, Trading or Service sectors
- Self-employed people/professionals – CAs, Doctors, etc.
- Private limited companies and closely held limited companies
Business Turnover, Operation History, Business existence, credit score and gainfulness criteria are defined by the respective bank and NBFC.
Features of Business Loan
- Fixed Interest Rate
Business Loan Interest Rates are generally fixed, which means the Interest Rate won’t change for the entire loan tenure. The business loan interest rate offered by banks and NBFCs begins at 14.99% onwards and can go up to as high as 48% onwards, depending upon the loan sum or candidate’s requirements.
- Loan Amount
The loan sum that one can profit in business loan can be up to Rs 2 crore and even more depending on the requirement of the business. The loan sum chiefly depends on the money related credibility of the candidate and monetary foundations check the eligibility of the candidate before lending the sum. Moreover, budgetary establishments like banks and NBFCs review the candidate’s credit history/score, Identity confirmation, business area, business existence, income details before loan endorsing.
- Collateral Free Loan
Business Loans being unsecured loans don’t require any collateral from the candidate. However, there are specific and very few loans in which plant, machinery or crude material need to be provided as collateral. Candidate does not require giving any asset like vehicle or house to profit business loan.
- Flexible Repayment tenure
The loan candidates enjoy flexible repayment tenure that goes as long as 5 years, making it more preferable over other loans. The candidate likewise have a choice of loan pre-payment in which he/she can foreclose the loan by paying some extra charges defined by the respective bank or NBFC.
Business Loan Categories
- Bill Discounting
Invoice limiting is a monetary instrument offered by banks and NBFCs. Bill limiting is a source of working capital finance for the seller of merchandise on credit. it is a markdown which, a monetary foundation takes from a seller’s customer. Through the payment being made by letter of credit, buyer has the choice of purchasing merchandise from the seller. Bills that come under bill limiting are termed as ‘bills of exchange’.
- Letter of Credit
Letter of credit is a payment instrument used for the most part in international trade in which bank provides monetary guarantee to enterprises which deal in import and export of merchandise. Letter of credit is used for both import and export of products. Enterprises doing businesses overseas have to deal with obscure suppliers and they require assurance of payment before performing any exchange. Therefore, letter of credit is essential to provide payment assurance to the suppliers or exporters.
- Loans for Self-employed Entrepreneurs
This is the most mainstream category among all as the loans for self-employed entrepreneurs are taken in large numbers. The loan sum can range anywhere between Rs. 50,000 being the base and can reach up to 10 crore. The interest rate offered depends on the money related history of the candidate and is decided by the lenders as per their discretion.
- MUDRA Loan
Smaller scale Units Development and Refinance Agency (MUDRA) loan is a subsidizing provided by the greater part of the leading banks to Micro, Small and Medium Enterprises (MSMEs) nationwide. Under the MUDRA scheme, loans of least Rs. 50,000 and most extreme of Rs. 10 lakh are provided to begin an enterprise or a SME unit. Through the Mudra Loan Yojana, the Government needs to ensure that proper subsidizing is provided to first-time entrepreneurs or existing business owners.
- Overdraft Loan
An overdraft means overdrawing money from ones’ current/bank 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 sum is within the constraints of a preceding agreement.
- Pradhan Mantri Mudra Yojana (PMMY)
PMMY is a scheme launched by Government of India to offer assets up to Rs. 10 lakh to non-ranch little/smaller scale enterprises and non-corporate companies. Mudra loan scheme is divided into three categories named as Shishu, Kishore and Tarun wherein these loans are offered by Private Sector Banks, Public Sector Banks, Regional Rural Banks (RRBs), etc.
- Stand-Up India
Stand-up India scheme was introduced by Government of India to provide financing to people who come under SC/ST category and women entrepreneurs. The basic role of this scheme is to help banks in offering loans between Rs. 10 lakh and Rs. 1 crore to in any event one SC/ST borrower and at any rate one women entrepreneur per bank branch in enabling them to set-up their own enterprise.
- Term Loan
Currently numerous types of term loans are available, for example, momentary loan, long haul loan and other intermediate loans. An entrepreneur can benefit these loans as indicated by his/her requirements and economical position. Predominantly the loan tenure for a momentary loan is a year and for long haul loan it goes up to 5 years.
Term loans are divided into two sections, 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 as a rule possess lower interest rates as compared to an unsecured one. The greater part of the business loans are unsecured loans and don’t require any collateral or security to be submitted to banks or NBFCs.
- Working Capital Loan
Working Capital Loans are used to overcome the everyday money related requirements of enterprises. The day by day expenditure of enterprises include paying-off salaries, purchasing crude materials, paying rent, undertaking trainings, etc.
Special Schemes for Women Entrepreneurs
These days, 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 the banks additionally have special departments for women entrepreneurs where they provide them business counseling, preparing and counseling alongside avenues for marketing and exhibiting of their items. Women entrepreneurs whose ownership is less than half in the organization are not eligible to profit the benefits of the women’s special schemes.
Some of the well known loan schemes for women entrepreneurs are as per the following:
- Mahila Udyam Nidhi Scheme
- Mahila Samridhi Yojana
- Cent Kalyani from Central Bank of India
- Stree Shakti Package from State Bank of India
- Shringaar and Annapurna from Bhartiya Mahila Bank
- Dena Shakti Scheme from Dena Bank
- Recent Passport-sized Photographs
- Identity Proof – PAN card, Aadhaar card, Valid identification, Voter’s ID card, Driving License
- Address Proof – Voter’s ID card, Aadhar card, Passport, Driving license, Utility bill, Water Bill, Electricity Bill
- Business Address Proof
- Evidence of business existence for most recent 3 years
- Most recent a half year’s bank statement
- Most recent 3 years’ Income Tax Return (ITR)
- Balance sheet and Profit and Loss account statement
- Monetary documents audited/attested/signed by Certified CA
- Copy of Trade License
- Sales Tax Certificate
- Certified Copy of Partnership Deed
- GST Registration Certificate
- Verification of ownership of the possessions used for business activities
How to get Business Loan approved?
Like some other loan, business loan likewise analyses a person’s creditworthiness by checking the repayment ability, business records, budgetary history and security.
Coming up next is the helpful checklist of business loan requirements; you should keep these things as a primary concern before applying to bank for a loan:
- You should be ready with a well-written business intend to submit to the lender
- You should keep a decent credit/CIBIL score that will range between 650-900 focuses
- Ensure that you meet the eligibility criteria, business loan requirement and have all the required documents
- Repay your existing debts at the earliest, assuming any
- Have sufficient finances ready, in case the lender needs you to put something forward in advance
As you are applying for business loan, you should keep up an inclusive database of the organization’s money related circumstance and past performance alongside its income statement.
On the off chance that you are applying for a loan for new business, then you should concentrate on the ideas and presentation. With the above checklist, you will be able be go in right direction of gaining the necessary financing for your business.
Benefits of Business Loan
- Helps to increases the income
- Comes with flexible re-payment tenure
- Higher loan sum can be availed
- Collateral Free Loans
- Get pre-approved loans from selected lenders
- Accessibility of momentary loans, also
- Least paperwork
- Fast disbursal