Business Loan

Business Loan

A business loan is specifically designed to provide financial support to businesses for various operational and expansion needs. Similar to other loans, business loans involve borrowing money with an obligation to repay it with interest. These loans are essential for entrepreneurs, companies, and self-employed individuals looking to either start a new venture or expand an existing one.

Types of Business Loans

Business loans are provided by various institutions including banks, private lenders, and government schemes. The loan type can be determined by the purpose for which it is being applied. Broadly, business loans fall under the following categories:

1. Fresh Business Loan A fresh business loan is primarily availed when a business owner is looking to establish or expand their existing venture. It serves various purposes such as purchasing new machinery, covering working capital gaps, or funding business operations. When considering such a loan, the criteria for approval might differ based on whether the business is a new startup or an existing business. The loan may also require customized documents, depending on the applicant's needs. Banks and financial institutions offer business loan plans that are tailor-made to cater to these requirements.

2. Working Capital Loans Working capital loans are designed to provide the financial support required to manage day-to-day operations and expenses, such as paying for raw materials, salaries, or rent. These loans ensure that businesses can sustain their operations even during periods when income is insufficient.

3. Business Expansion Loan Business expansion loans are used when an entrepreneur wants to expand their business beyond its current capacity. It might involve opening a new branch, hiring more employees, investing in new equipment, or expanding into new markets. These loans provide the necessary financial backing to fund the expansion.

4. Business Loan for Equipment or Machinery Almost every type of business requires specialized machinery or equipment for its operation. Since purchasing this equipment can often be costly, a business loan is an excellent way to cover these costs. The loan amount is typically repaid with the profits generated from the use of the equipment or machinery.

5. Business Loan for Self-Employed Professionals A business loan for self-employed professionals such as doctors, engineers, architects, chartered accountants, etc., is an unsecured loan offered to professionals for expanding their practice or business. These loans range from Rs. 25,000 to Rs. 75,00,000 and are approved based on the financial status and credit history of the applicant.

6. Business Loan for Financing a Project A long-term loan that is granted for specific business projects. Companies must submit a project assessment report to demonstrate the viability and profitability of the project. Based on the report, the loan amount is approved for financing the project.

Benefits of Business Loans

Business loans offer a plethora of benefits that help entrepreneurs take their businesses to the next level. Some of these benefits include:

1. Working Capital Support Even a successful ongoing business may need a loan to cover daily expenses and ensure smooth operations. Business loans offer timely support to bridge the gap when earnings are inadequate to cover operational costs.

2. Expansion of Business Entrepreneurs dream of expanding their businesses beyond local markets. Business loans provide the financial muscle required for the purchase of new property, hiring more staff, acquiring machinery, or opening a new branch. A loan allows entrepreneurs to seize new opportunities and grow their business.

3. Infrastructure Development Good infrastructure is essential for businesses to succeed, whether it is a retail space, office setup, or industrial facility. Business loans provide the necessary funds to build or renovate infrastructure, which, in turn, boosts the company’s overall performance.

4. Buying Equipment Many businesses rely on heavy machinery and specialized equipment. A business loan can help cover these upfront costs, ensuring that the necessary tools and machines are available for smooth operations.

5. Project Financing For long-term, large-scale projects, businesses can apply for loans to fund specific project requirements. The loan can be used to cover capital expenses, equipment purchases, and other project-related costs.

Categories of Business Loans

1. Term Loans A term loan is typically used for acquiring long-term fixed assets such as land, buildings, machinery, or other infrastructure. These loans come with a fixed or floating interest rate, and repayment is spread over a period of time.

2. Overdrafts An overdraft allows a business to withdraw more money from a current account than the available balance. The overdrawn amount incurs interest, and the borrower must repay it within the specified limits.

3. Bill Discounting Bill discounting helps businesses secure instant cash by submitting their credit sales invoices and transportation documents to the bank. The bank provides immediate cash and discounts on the sales invoices.

4. Letter of Credit In international trade, a letter of credit is issued by the buyer's bank, ensuring payment to the seller upon fulfillment of the terms of the sale. This is a critical tool for businesses engaged in cross-border transactions.

Eligibility for Business Loan

1. Eligibility Criteria

   • The applicant must be self-employed (retailers, manufacturers, service providers, etc.).
   • The business must be in operation for at least 3 years with a minimum turnover of INR 20 lakh.
   • The applicant’s credit score should be 650+ to ensure approval.

2. Co-Applicant A business loan may require a co-applicant, such as a spouse or business partner, especially in the case of a proprietorship firm. Co-applicants can provide additional financial backing for loan approval.

Personal Loan Eligibility & Standards

Particulars	Eligibility	Description
Profile	Self Employed	Retailer/ Wholesaler/ Manufacturer / service provider etc.
Borrower Type	Firm / Company/ Individual	Proprietorship / Partnership/LLP/ Private Ltd/ Society /Trust.
Co Borrower	Spouse/ Blood Relative/ Partner/ Director/Trusty	In case of Proprietorship firm proprietor is the co-borrower.
Individual Age	Between 21 years to 65 years	Age cannot exceed 70 years at the time of loan maturity.
Financial Statement	Business Should be in profits and Turn Over should be more than 20 lack in the latest financial year	Income tax returns are mandatory.
Loan Amount	Minimum 10,000 INR to 50,00,000 INR
Loan Term	Minimum 3 months to 72 months	Depending upon the age, salary and profile.
Interest Rates	14% to 45% per annum	Depending upon the profile.
Processing Fees	0.75% to 3%	GST is excluded.
Prepayment Charges	Nil to 5%	GST is excluded.
Business Continuity	3 years in current business
Credit History	CIBIL score should be 650+	-1 credit score can be considered.
Ref. Check	Positive	Mandatory

Documents Required for Business Loan

To process a business loan, several documents are required depending on the type of business and the nature of the loan. Below are the general documents needed:

	Borrowers	Individual		Proprietorship	Partnership	Pvt Ltd.	Society/Trust
	Co- borrowers	Spouse/ Blood Relative		Proprietor	Partners	Directors	President/Secretary/Trusty
	Photos of All individuals	1 – 1 Passport Photos
KYC*-Individuals	Photo Identity Proof	Pan card
	Current Address Proof	Aadhar Card/Bank Statement/ Rent Agreement + Latest Electricity Bill of Land Lord
	Permanent Address Proof	Aadhar Card/Latest Electricity Bill, Latest Water Bill
Business KYC*	Business Identity proof		Business Registration /GSTIN		Pan card	Pan card	Pan card
	Address Proof of Own Premise	Business Registration from Govt Body/Utility Bill/Current Account Statement				Trust Deed, Registration, Utility Bill
	Address Proof of Rented Premise	Rent Agreement with Land Lord Latest utility Bill
Income Documents	ITR	CA Attested -Last 3 years ITR with minimum 6-month gap, Computation, P&L, Balance Sheet, Audit Report		CA Attested -Last 3 years ITR with minimum 6-month gap, Computation, P&L, Balance Sheet, Audit Report-If Applicable
Other Business-Related Documents	Current Year Documents	GST returns of current quarters where the ITR is not yet filled, Provisional P&L and Balance Sheet, Debtor, Creditor List, 3-3 References of Suppliers and Buyers					Provisional P&L and Balance Sheet
	Other Specific Documents	Cash Business Details- If available		Other Business running licenses	Partnership Deed, Revised Partnership deed- in case of any changes	MOA, AOA, Director appointment or cessation details, Share Holding pattern on letter head of CA or company, Other Business running licenses	List Of society/Trust Members, Bylaws of trust or society, Last 3 years Student strength details, Last 3 years Fees structure, Brochure, School affiliation

Features of Business Loans

1. Collateral-Free Loan Business loans are generally unsecured, meaning no collateral is required for approval. Lenders evaluate the applicant’s creditworthiness based on income, business turnover, and financial documents.

2. Fixed Interest Rates The interest rates on business loans remain fixed for the entire tenure, offering predictability in terms of loan repayments.

3. Flexible Repayment Options Business loans offer flexible repayment terms, typically up to 5 years, making it easier for businesses to manage their finances.

4. Loan Amount Business loans can range from Rs. 10,000 to Rs. 50 lakh, depending on the applicant’s financial profile.