Business Loan

Business Loans

Starting a business or even successfully running one, often brings about the need for capital or in other words, monetary funds. This need can be fueled by different factors and most business owners or entrepreneurs look into different ways to meet this need. One way to access capital or monetary funds for business purposes is to look into the possibility of acquiring a business loan. Fortunately, for aspiring Indian entrepreneurs and startup businesses on a growth trajectory, the possibility of acquiring a business loan is high owing to the many private and public sector banking corporations offering business loans. As mentioned, prior, the need for capital or monetary funds to start a business or run a business may come up for various reasons. However, it makes sense to research further into the many terms and conditions that apply to business loans before applying for one. This article aims to provide the reader with all the information needed on the subject of business loans. Read further for in-depth insights.

General Overview of Business Loans

Many banks and NBFCs in India specialize in business loans. While these banks and financial corporations may have varying terms and conditions, the infographic below provides a general overview of business loans in India.

Interest Rates on Business Loans

It must be noted that different banks have different interest rates for business loans. Furthermore, interest rates may vary in keeping with different factors such as...

• The repayment tenure of the loan
• The borrower's credit history
• The loan amounts
• Number of years the company has been in operation
• Collateral
• Turnover of the company

While interest rates differ, the type of interest charged on the loan amount may vary as well. Borrowers often have the choice to pay flat interest rates or diminishing interest rates. Flat interest rates are quite straightforward, as in the borrower pays the same EMI amount for the entirety of the loan repayment tenure.  With diminishing interest rates, the borrower pays lower interest rates based on the loan balance amount even as he or she pays off the loan in installments as and when stipulated by the lending agency or bank. The infographic below makes the process of shopping for the lowest interest rates on business loans easier with an overview of interest rates on business loans offered by leading banks and NBFCs in India.

 

*It must be noted that the infographic above depicts the interest rates for a limited number of banks and NBFCs in India. These, however, are the leading banks and financial corporations in the country.

Eligibility Criteria

Banks and NBFCs simply do not give away business loans, the borrower must conform to standard eligibility criteria. Listed below are the primary criteria for business loan eligibility.

• Fitting into Bank Scheme/Product - Most banks have more than one scheme or financial product for business loans. The borrower must do his or her research and apply for a loan that his or her business is most suitable for.
• Documentation – Having all the necessary documentation to prove the viability of one’s business goes a long way in securing business loans.
• Cash Flow and Profit – Banks and NBFCs prefer to lend to businesses that project profitability and positive cash flow in the long run.
• Borrowers Margin – As banks are not willing to lend 100% of working capital or investments needed, the borrower must ensure that he or she can meet the borrower's margin which can vary from 10% to 50%.
• Primary Security – Banks require primary security that needs to be materialized using the funds lent to the borrower. If the borrower is using the funds as working capital to buy raw material and stocks, this primary security will be hypothecated by the bank in the event of failure to pay back the bank.
• Collateral- borrowers are also expected to pledge personal assets as collateral which is a source of secondary security for the bank.
• Experience and Reputation – The experience of the borrower pertaining to running a business and the reputation of the borrower in terms of credit history is subject to scrutiny.

Documentation

As mentioned, prior, documentation to prove the viability of one’s business and the credibility of the borrower is required to avail of business loans. The paperwork needed by leading banks and NBFCs to sanction business loans and to process applications for the same is as listed below.

• ID Proof
• Address Proof
• Company Pan Card
• 6 Months Company Bank Statements
• Continuation documentation in the form of establishment proof, sales tax certification, and trade license
• Computation of income, Profit and Loss Statements for 2 Years, financial statement
• Sole proprietorship declaration
• Partnership deed

Additionally, borrowers must have a business plan in place. This is to convince the bank or the lender that the business is well able to make profits and repay the bank loan. The emphasis here is on having a long-term business plan drawn up, that truthfully indicates the company’s ability for growth and stability.

Special Schemes

To get the best deals on business loans, it does help to enquire from banks about special government schemes for startup funds or working capital. These schemes offer special benefits for special groups such as entrepreneurial women and those belonging to scheduled castes and scheduled tribes. The Pradhan Mantri Mudra Yojana and Stand Up India are outstanding examples of these special schemes.

In conclusion, the information above is sure to serve as an in-depth insight into business loans. Readers are welcome to use this article as a guide for availing of business loans with an emphasis on getting the best deal possible.