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Business Loan

Business loan is a credit facility offered by Banks/NBFCs and various other financial institutions to meet the business requirements of individuals, self-employed customers, business owners, MSMEs, and other business entities. Business Loan can be availed by startups, entrepreneurs, retailers, traders, manufacturers, self-employed professionals (CAs/Doctors), existing businesses, and several other business entities.

Business loan is majorly classified into two types, such as Secured loan and Unsecured loan. Secured loans are types of loans that require collateral/security, that borrowers need to deposit with the lender to avail funds. However, in the case of unsecured loans, there is no need to submit any type of collateral/security with the Bank/NBFC, or any other financial institution.

Banks/NBFCs offer a range of both Secured and Unsecured Business Loans that include Term Loans (Short-term/Intermediate-term/Long-term), Working Capital Loans, Cash Credit, Overdraft, Letter of Credit, Bill/Invoice Discounting, Equipment Finance, Machinery Loans, Point-of-Sale (POS) Loans/Merchant Cash Advance, Fleet Finance, Loans under Bank Guarantee (BG), and Loans under Govt. schemes, such as Mudra Loans (PMMY), SIDBI, PMEGP, CGTMSE, Stand Up India, PSB Loans in 59 minutes, PMRY, etc. Financial institutions also offer Startup Loans, Small Business Loans, Instant Business Loan and Micro Loans of loan amount up to Rs. 10 lakh or more depending upon business requirements.

  • Minimum age of the applicant should be 21 years and maximum up to 65 years at time of loan maturity
  • Work Status: Self-employed
  • Business Tenure: Minimum 1 year or above
  • Minimum Annual Turnover: Shall vary from lender to lender
  • Credit Score: 750 or above
  • Applicants with no past loan defaults with any financial institutions
Eligible Entities
  • Individuals, Business Owners, Entrepreneurs, Self-employed professionals (CAs/CSs/Doctors/Architects), Startups, and MSMEs
  • Private and Public Limited Companies, Sole Proprietorships, Partnership Firms, Limited Liability Partnerships (LLPs), and Large Enterprises engaged only in the Manufacturing, Trading, or Services Sectors
  • NGOs, Co-operative Societies and Trusts, etc.

 

When applying for a business loan, you will need to submit the following documents:

  • Duly filled application form along with passport-sized photographs
  • KYC Documents of the applicant, including PAN card, Passport, Aadhar Card, Driving License, Voter ID card, Utility Bills (Water/Electricity Bills)
  • Last 1 years’ bank statement
  • Copy of Non-Collateral Overdraft, if any
  • Copy of Business Incorporation
  • Any other document required by the lender

The business loan fees and charges or any type of business loan shall vary from lender to lender and case to case. Usually, the fees and charges depend on the applicant’s profile, creditworthiness, nature and type of business, desired loan amount, offered interest rate, repayment tenure, and several other factors.

Term Loan

Term loan is offered under various types, such as short-term loan, long-term loan and other small business loans. The loan amount offered under term loan depends on the applicant’s profile and business requirements that can be repaid in 12 months to 5 years, in the form of EMIs. Term loans are divided into two parts, unsecured business loans, and secured business loans. Secured loans require collateral to be submitted with the lender, which is not the case with unsecured business loans.

Working Capital Loan

Working capital loans are availed to meet the day-to-day business requirements or to manage business cash flow. The working capital loan can be availed for various other purposes, such as business expansion, buying equipment or machinery, purchasing raw materials or goods, paying off salaries or rent, enhancing inventory, and much more. Usually, the repayment tenure offered by most lenders is up to 12 months which shall exceed as per business requirements and the sole discretion of the lender.

Bill/Invoice Discounting

Invoice discounting is a financial instrument offered by Banks/NBFCs. Bill Discounting is a source of working capital finance for the seller of goods on credit. It is a discount that a financial institution takes from a seller’s customer. Through the payment being made by letter of credit, the buyer has the option of buying goods from the seller. Bills that come under bill discounting are termed Bills Of Exchange.

Letter of Credit (LC)

Letter of credit is a payment instrument used mainly in international trade in which the bank provides a monetary guarantee to enterprises that deal in the import and export of goods. Enterprises doing business overseas have to deal with unknown suppliers and they require assurance of payment before performing any transaction. Therefore, a letter of credit is important to provide payment assurance to the suppliers or exporters.

Point-of-Sale (POS) Loan / Merchant Cash Advance

Point-of-Sale Loan is a type of credit facility wherein merchants offer funding to their customers at the point of their purchase. Business owners, Enterprises, MSMEs, Entrepreneurs, and Retailers can avail such funding. Loans against POS machines to start a new business or to manage their existing businesses. POS Loan, also termed Merchant Cash Advance is a loan type in which the sanctioned amount depends on the business volume generated via POS terminals.

Overdraft (OD)

An overdraft means overdrawing money from one’s current/savings account even if the account balance is zero or even below. An agreed rate of interest will be charged if the overdrawn amount is within the limits of a preceding agreement. The interest rate is charged only on the utilized amount of the total withdrawal or sanctioned limit.

Q1. What is a good credit score to get instant business loans?

Ans. Any credit score that is 750 or above is considered good by financial institutions. The maximum credit score is 900 and any score close to it shall be preferred first by lenders.

Q2. How to choose the ideal repayment tenor for business loans?

Ans. Ideally, if you avail short-term loan then the repayment tenure should not exceed 12 months. However, it may increase as per the desired loan amount. The maximum repayment period can be chosen up to 5 years depending upon the loan amount that may exceed as per business requirements.

Q3. What is the impact of GST on business loans for new businesses?

Ans. GST plays an important role in getting business loans, as the more the GST is paid, the larger shall be the business volume. Therefore, it becomes easy for banks to rely on such applicants or borrowers that pay their GST.

Q4. What is the minimum turnover requirement for a loan to start a business?

Ans. The minimum annual turnover criteria are defined by the lender and vary from bank to bank. 

Q5. What are the pre-closure and part-prepayment charges in business loans?

Ans. The pre-closure and part-payment charges vary from lender to lender. It may be Nil from some Banks and may exceed up to 5% of the loan amount from others. Ensure to check the same with your lender.

Q6. What are the loan schemes initiated by the Government of India?

Ans. Some of the popular schemes include MUDRA Yojana under PMMYSIDBI loanCGTMSEPMEGPStandup IndiaStartup Indiapsbloansin59minutes.comNSICNABARD, etc.

Q7. I want to start a dairy farming business. so how can I get a small business loan of Rs. 10 lakhs? 

Ans. To get a small business loan you can check and compare all the available options under a single web platform and get a collateral-free small business loan up to Rs. 10 lakhs at low-interest rates. You can also apply for a Mudra loan under PMMY or a loan with Private sector banks, NBFC, or small finance banks.

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