Business Loan

Features and Benefits of  Business Loans :

Below are some characteristics of business loans offered by different financial institutions:

 Most banks and NBFCs offer secured and unsecured business loans.  

Interest rates on business loans vary from lender to lender and are based on the applicant's creditworthiness, type of business, type of business loan offered, and type of collateral. Existing business borrowers of many banks and NBFCs can avail top-up loans on top of their existing business loans.

 Many lenders offer overdraft facilities to existing business borrowers.

Existing and new customers of some lenders can apply for pre-approved business loans with instant loan disbursement and minimal documentation.  Many financial institutions offer lower interest rates to women borrowers.

Applicants can also apply for business loans online, resulting in quick approval, minimal documentation, and quick loan disbursement.

 Types of Business Loans:

•  Unsecured Term Loans 

Lenders offer unsecured term loans to small and medium-sized businesses to meet business needs such as B. Business expansion without collateral, modernization in technology, and meeting cash flow needs. 

• Secured Term Loans

Secured term loans are offered against real estate collateral, existing business assets of the applicant, financial collateral, etc.

•  Unsecured Overdraft for Businesses 

Unsecured business overdraft is an unsecured line of credit that allows the applicant to withdraw funds from the business current account up to a prescribed limit, even if the balance is zero. 

• Secured Overdraft for Businesses 

Lenders offer secured business overdrafts to  existing customers who maintain current/savings accounts with the lender to fund their  operations and cash flow. This line of credit  is offered against residential/commercial/industrial properties, financial securities like LIC policies, KVPs/NSCs, fixed deposits, mutual funds, etc. 

•  Business Loans for Professionals 

Professional business loans are offered for self-employed professionals like doctors/healthcare professionals,  architects, CAs, CSs, etc. Self-employed individuals can avail this loan  to fund their business and working capital needs such as business expansion, purchase or construction of office space, purchase of machinery, furniture, fixtures and equipment, purchase of medicines etc. 

• Invoice Discounting 

Invoice discounting allows  businesses to get their outstanding invoices paid early. The borrower presents the invoice issued to the customer to the lender, who makes the payment immediately after deducting a certain amount as discount or commission. The lender then collects the  full amount from the borrower's customer on the  due date of the invoice. In case of  delay, the borrower or  customer has to pay the prescribed interest to the bank or NBFC. 

• Machinery Financing 

Machinery financing is a loan facility that allows  applicants to purchase machinery and equipment for business purposes. 

• Purchase Financing:

Lenders provide purchase financing to manufacturers, distributors, and service providers to pay for  raw materials and  goods they purchase from  suppliers.

•  Working Capital Loan:

Lenders provide working capital loans to fund the day-to-day needs of businessmmmm entities such as: B. Purchase of raw materials and payment of wages. 

• Letter of Credit 

A letter of credit (LC) is a payment guarantee issued by a lender that allows companies conducting international trade to minimize their credit risk.

•  Dealer Cash Advance/POS

This credit facility is offered to small and medium-sized businesses that are making online sales or own a POS device, and repayment is made by directly deducting the amount from the online sales or sales  through the POS device.

Here's a detailed overview :

 1 .   Eligibility Criteria  :

• Business Vintage: Typically, the business should have been operational for at least 2-3 years.

• Annual Turnover: Minimum turnover requirements vary by lender and type of loan.

• Credit Score: A good credit score (generally above 650) enhances eligibility.

3.   Documentation Required  :

• Business Documents: Business registration certificates, GST registration, MOA/AOA, etc.

• Financial Documents: Audited financial statements, balance sheets, profit and loss statements, income tax returns, bank statements, etc.

• KYC Documents: Identity proof, address proof, PAN card of promoters/partners/directors, etc.

4.   Loan Amount and Tenure  :

• Loan Amount: Determined based on the business's financials, creditworthiness, and the purpose of the loan.

• Loan Tenure: Typically ranges from 1 to 5 years, depending on the lender and type of loan.

5.   Interest Rates and Charges  :

• Interest Rates: Can be fixed or floating, depending on the lender and prevailing market conditions.

• Processing Fees: Charged at the time of loan processing.

• Prepayment Charges: May apply if the loan is prepaid before the end of the tenure.

6.  Approval and Disbursement  :

• After submitting the application and required documents, the lender evaluates the business's creditworthiness and financial health.

• Upon approval, the loan amount is disbursed either in a lump sum or in tranches, depending on the terms agreed upon.

7.   Repayment  :

• Repayment is typically through EMIs (Equated Monthly Installments), which include both principal and interest components.

• Some loans may offer flexible repayment options based on cash flow.

8.   Collateral Requirements  :

• Depending on the loan type and amount, lenders may require collateral, such as property, machinery, or other assets, to secure the loan.

9.   Government Schemes and Subsidies  :

• Various government schemes, such as CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises), offer credit guarantees to lenders, facilitating easier access to loans for small businesses.

10. Special Considerations:

• Sector-specific Loans: Some banks offer specialized loans for certain sectors like agriculture, export-import, technology startups, etc.

• Credit History: A strong credit history of the business and promoters enhances the chances of loan approval and favorable terms.

Navigating the business loan process in India requires thorough preparation, understanding of financial requirements, and choosing the right type of loan that suits the business's needs and growth plans. It's advisable to compare offers from multiple lenders to find the most suitable terms and conditions.

Things to know before taking a Business loan :

Before applying for a Business Loan,  you should know the following : 

• Interest Rate: 

Business loan interest rates vary from one financial institution to another. Applicants should check the interest rates offered by different financial institutions and choose the one with the lowest interest rate to reduce their interest burden.  

• Processing Time: 

Applicants should know how long it will take for a bank or NBFC to approve and disburse a business loan. Lenders who disburse business loans in a short period of time are usually preferred by  borrowers. Processing time varies depending on the type of business loan program and the type of collateral pledged. Credit Score: Applicants with a credit score of 700 or above are usually more likely to receive a business loan. Some lenders  offer low-interest business loans for those with high credit scores.

•  Processing Fees: 

Applicants should be aware of the processing  and other fees charged by lenders before applying for a business loan. 

• Collateral:

Lenders usually provide business loans in exchange for collateral such as: B. Equity, book debt, investment funds, real estate, liquid securities, and pledges of  commercial or construction machinery.