Business Loan

1. Easy access to funds: Applying for a business loan gives easy access to funds at a competitive rate of interest for business expansion and growth.  

1. Improved cash flow: Getting a buisness loan improves the cash Improved cash flow: Getting a buisness loan improves the cash flow in the business. This ensures smooth day-to-day operations, allowing for timely payment of suppliers, salaries, and other operational expenses. 

1. Tax Benefits: The interest paid on a business loan is often comes with tax benefits as a business expense. This can reduce your taxable income, potentially lowering your overall tax liability and making the loan a more affordable financing option. However, it is advisable to check with your tax advisor. 

1. No ownership dilution: In equity financing, you have to sell a part of your business to gain funds. However, a business loan allows you to retain complete ownership and control over your business decisions and future profits. You only repay the borrowed amount with interest. 

Business Loan Interest Rates by Top Banks in India

Features of Business Loans

Before you choose to apply for a business loan to start a new business or expand the current one, you should learn about the features of a business loan.

1. The corpus of a business loan depends on factors like your annual profit, business valuation, operating industry, and years of operation.
2. These loan applications usually get approved fairly quickly and sans any hassle during processing. Most banks and financial institutions provide their customers with the promise of secured lending solutions when it comes to business loans.
3. Business loans offer flexible repayment options and require minimal documentation, making it a preffered choice.
4. Unsecured business loans help businesses fund their immediate needs, like expansion or working capital, with convenient EMI repayments.
5. Banks and financial institutions offering business loans also provide their customers with the flexibility of doorstep service. Additionally, a number of business loan lenders in India usually don’t expect any collateral, guarantor or security from the applicant.
   
6. Business loans come with the added benefit of services such as SMS, Web Chat, Phone Banking, etc. Some banks even extend exclusive higher loan amounts to their self-employed customer base.
7. Thus, if you are in need of funds for business needs, make sure to compare your options and apply for a business loan at the earliest.

Types of Business Loans

There are various types of business loans that you can apply for. They are given below:

Term Loans

A term loan is a type of business loan suitable for both short and long-term needs. You can utilise the funds for various purposes like business expansion, asset acquisition, and more. The interest rate will be determined by the loan amount and the repayment tenure you select. 

Term Loan Eligibility Criteria

The eligibility criteria to apply for a Business Term Loan are given below:

1. You must be a resident of India
2. You must be aged between 24 years and 70 years.
3. You must have a decent credit score.

Term Loan Online Application Process

1. Visit the official website of the lender from whom you wish to apply for a business loan.
2. Click on the ‘Apply Now’ button. In the next step, provide details such as your name, date of birth, email ID, mobile number, etc.
3. Fill in the application form and submit it along with all the necessary documents. The bank will verify all the details and if everything is correct then the amount will be disbursed to your bank account.

Term Loan Offline Application Process

You can also visit the nearest bank’s branch and submit the application form and documents to apply for a business term loan. Make sure you have all the relevant documents, and you meet all the eligibility criteria.

Repayment Tenure: The repayment tenure offered under such business schemes ranges between 4 years and 5 years.

Working Capital Loan

A working capital loan finances a business's daily operations, like payroll and accounts payable, especially useful during inconsistent sales or seasonal slumps. Available as secured or unsecured financing, eligibility depends on the loan amount and the firm's financial health. 

Working Capital Loan Eligibility Criteria

The eligibility criteria required to apply for a Working Capital Loan offered by most of the banks are as given below:

1. You must be an Indian resident.
2. You must be aged between 21 years and 70 years.
3. There should be no loan default from your end.
4. You must maintain a decent credit score.

Application Process of a Working Capital

You can apply for a working capital loan either online or offline. For online application process, you can visit the lender’s website and submit the application form and relevant documents after which it will be verified. If all the details are correct, then the loan amount will be disbursed to your bank account.

For the offline process, simply visit the nearest branch of the bank and submit the application form and the documents. If all the documents are correct, the loan amount will be disbursed to your bank account within 3-5 business days.

Repayment Tenure: The repayment tenure offered may range between 6 months and 4 years.

Small Business Loans in India

Small businesses who may not require a high capital but still need funding for expansion or operational purposes may avail SBA loans. You can avail loan amount between Rs.10 lakh and Rs.25 lakh. These types of loans might require you to provide security such as your mortgaged land, depending on which you will be able to avail yourself of a loan amount.

Eligibility Criteria

The eligibility criteria to avail this type of business loan are given below:

1. You must have an existing business for at least 3 years.
2. You must be a resident of India aged between 24 years and 70 years.
3. You must not be a defaulter on previous loans.

Application Process

Most banks allow you to apply for SBA loans either online or offline. For online process, simply visit the official website of the bank and apply by submitting the application form and the necessary documents. If all the details are in order and you meet the eligibility criteria, the loan amount will be disbursed to your bank account.

For offline process, simply visit the nearest branch of the bank and submit all the necessary documents including the application form. The loan amount will be disbursed to your bank account if all the details provided by you are correct.

Repayment Tenure: Repayment tenure may range between 1 year and 5 years.

Line of Credit

A line of credit offers flexible borrowing, allowing you to draw funds as needed up to a set limit. You only pay interest on the amount actually utilized. Generally, you can access up to Rs.25 lakh with interest rates around 1.5% per month. 

Eligibility Criteria: If you own a business with a turnover of Rs.20 lakh and above and operational for a minimum of one year can apply for this type of business loan.

Application Process

Applying for such loans online is simple and straightforward. Simply provide the necessary details including the application form and documents and if they are in order, a line of credit will be activated. Withdraw only the amount you need and pay the interest on the amount used.

Repayment Tenure: The repayment tenure offered ranges between 1 month and 1 year.

Business Loan Eligibility

To avail yourself of a business loan from a lender, you will need to check if you meet the eligibility criteria listed by the lender. Listed below are the general eligibility criteria to avail business loans:

1. The loan can be availed by self-employed professionals, self-employed non-professionals, & entities.

1. Self-employed professionals usually include doctors, chartered accountants, company secretaries, architects, etc. This is subject to the applicants who have proof of qualifications and also are practicing their profession.

1. Self-employed non-professionals include traders, manufacturers, etc.

1. Entities include partnerships, limited liability partnerships, private limited companies, closely held limited companies, etc.

1. The business may be required to have a minimum turnover of Rs.40 lakh

1. Minimum of 3 years’ experience in the current business is required.

1. Minimum 5 years of total business experience is required.

1. The business should be making a profit for the last 2 years.

1. Minimum Annual Income (ITR) of Rs.1.5 lakh per annum is required.

1. Applicants should be between the ages of 25 years and 55 years.

1. The IT returns for the last 1 year should have been filed.

1. Lenders may offer business loans to only certain cities and towns.

Documents Required to Apply for Business Loan

In order to apply for a business loan, you will require the following documents:

1. PAN Card for Company, Firm or Individual.
2. Proof of ID, in the form of, copy of Aadhar Card, Passport copy, Voter’s ID copy, driving license.
3. Proof of address, in the form of, copy of Aadhar Card, Passport copy, Voter’s ID copy, driving license.
4. Bank statement (last 6 months)
5. Latest ITR along with computation of income, balance sheet and P&L account for the last 2 years. All financials must be CA certified or audited.
6. Proof of continuation (ITR/Trade License/Establishment/Sales Tax Certificate)
7. Sole Proprietorship Declaration or certified copy of Partnership Deed.
8. Certified true copy of Memorandum and Articles of Association.

How to Apply for a Business Loan

Step1: You can apply for a business loan through online or offline channels. A number of lenders, today, give prospective customers the option of directly applying for a business loan through their official websites. To apply for a business loan online, you will need to visit the lender’s respective website, click on the loan product that you wish to apply for, and click on ‘Apply Now’.

Step2: Upon doing so, you will be redirected to another webpage, wherein you will be required to key in certain details into an online application form. You may be asked to enter your name, age, contact number, city of residence, details about your business, etc.

Step3: Once you key in the required information, you can click on ‘Submit’ to submit the online application form. A representative from the bank/financial institution will contact you to take the loan application process forward.

Step4: You can also choose to visit the nearest branch of a bank or financial institution and directly apply for a loan through the branch. In this case, you will need to submit the loan application form along with the required supporting documents at the branch.

Step5: Once the lender verifies your loan application and documents, your application will be approved, after which the loan amount will be disbursed into your account.

Reasons to Take a Business Loan

There are multiple reasons for applying for a business loan. However, you should opt for this scheme only when you have a strong business plan, you foresee a decent cash flow in the future through the business and the capital return of your business is greater than the interest of the loan borrowed.

Below mentioned are the circumstances under which you can take a business loan in order to meet your financial requirement:

1. While establishing a new business
2. For business expansion
3. To purchase machinery and equipment
4. To manage cash flow within the organisation
5. Require working capital for business
6. To turn business losses into profits
7. To repay previous debts
8. While running a seasonal business

Government Business Loan Schemes in India

There are certain government backed business loan schemes which you can avail for yourself. We have listed down below some of the government sponsored business loan schemes that you can apply for provided you meet the necessary eligibility criteria:

1. SIDBI Loans: Small Industries Development Bank of India (SIDBI) loans was set up in 1990 to help in the growth of MSME sector in India. You can approach Small Finance Banks (SFBs) and Non-Financial Banking Corporations (NFBCs) and apply for loan amounts ranging between Rs.10 lakh and Rs.25 crore with tenure of up to Rs.10 crore. You won’t need to provide any collateral for loan amount of up to Rs.1 crore.
2. Credit-Linked Capital Subsidy Scheme: This loan can be availed if you wish to upgrade the technology for your business. Here, you will be able to get an up-front capital subsidy of 15% provided you have an operational business.
3. Credit Guarantee Fund Scheme: MSME based businesses can avail this scheme without providing any collateral. Any regional rural bank, and scheduled commercial bank can become a part of this scheme. Under this scheme, the agency will provide loan scheme to eligible MSME based business with loan amount ranging between Rs.10 lakh and Rs.1 crore.
4. MSME Loan Scheme: This is a government-based business loan scheme which can be availed by any business with loan amount of up to Rs.1 crore. The processing of loan will take roughly between 8 days and 12 days.
5. National Small Industries Corporation Subsidy: Under this scheme, two types of funding options are available – Marketing Assistance, and Raw Material Assistance. Any micro or small business enterprise with an EM Part-II (Optional)/ Udyog Aadhaar Memorandum (UAM) will be eligible to apply for this business scheme.
6. Mudra Loans: There are three schemes offered under Mudra Loan. They are, Shishu Loan - amount of up to Rs.50,000, Kishore Loan - amount of up to Rs.5 lakh and Tarun Loan - amount of up to Rs.10 lakh. A new category addition has been made under mudra loan scheme named ‘Tarun Plus’. You get a loan of Rs.10 lakh up to Rs. 20 lakh under this scheme.

Things to Consider When Applying for a Business Loan

Listed below are a few points that you should consider before availing a business loan:

1. Work out how much your business needs: The quantum of loan offered by lenders to business owners/self-employed individuals is usually quite high. That said, it is necessary to assess your funding requirements and avail a loan that will help you fund your business requirements. It is best to not borrow more than what you require since the repayment may become a hassle.
2. Research the types of business loans: Many lenders offer more than one business loan as part of their product mix. These loans are likely to have varied terms, loan amounts, loan tenures, and repayment options. Further, select business loans may be specially catered towards certain sectors or segments of the society, thus helping individuals belonging to these groups avail either a lower interest or better terms. Hence make sure to do your due research about the various types of business loans that are available in the Indian market and make a choice accordingly.
3. Check your credit score: Lenders assess your creditworthiness via your credit score; a score above 700 generally increases approval chances and secures better interest rates. Review and improve your score before applying for a business loan. 
4. Understand the repayment terms: For business loans, the borrowed amount is, in most cases, repaid via Equated Monthly Installments (EMIs). Lenders usually take your repayment capacity into account and decide on a loan tenure and monthly EMI that is affordable. As an applicant, you should ensure that you understand your lender’s repayment terms. Make sure to not default on EMI payments since it can cause your credit score to dip.
5. Check the charges: Certain charges that are levied on business loans include the interest rate, processing fee, preclosure fee, documentation charges, part-payment fee, default fee, etc. Make sure to check the charges that are levied by different lenders and understand how they affect the cost of your loan.

The above-mentioned points are a few things that you should take into consideration when applying for a business loan. Also, it is in your best interest to compare at least a few business loans that are offered by different lenders and opt for one that suits your requirements.