BUSINESS LOAN TYPES

In INDIA, there are different types of Business Loan designed to cater different needs of businessmen and entrepreneurs.

  1. Loan for Working Capital: During your business, if at any point you fall short in your working capital then this loan would help you to maintain a healthy cash flow to sustain and fund your daily operations.
  2. Loan for buying machinery and equipment/ Machinery Loans: With the help of this loan you can purchase or upgrade to latest machinery, equipment or plant and ensure your business’ smooth working. Usually the cost of purchase or repair, replace or upgrade machinery is too high. In such scenarios, taking up a business loan would help in meeting the cost of purchasing, repairing or upgrading machinery. 
  3. Business loan by government/MSME loans: To boost economy and encourage businessmen and entrepreneurs, the government of India has launched schemes to provide financial aid to them. One such scheme is Pradhan Mantri MUDRA Yojana (MUDRA- Micro Units Development and Refinance Agency) under which government provides loan between Rs.50,000 to Rs.10,00,000 to encourage entrepreneurship under the MSME Sector.
  4. Business loan for women: This loan is designed especially for women entrepreneurs, women who dares to break the stereotypical ideology that business is not the cup of tea for women. To boost and encourage women and give wings to their business, many lenders in India offer business loans to women at comparatively lower interest rates, low processing fee and with no collateral requirements. In this type of loan any business woman or entrepreneur is eligible to take a loan up to Rs. 50,00,000 with interest rates starting from 12% onwards.

WHO CAN AVAIL BUSINESS LOAN?

  • Self- Employed Professionals-

Self Employed professionals include

Doctors, CA,CS, architects, engineers etc.

  • Self Employed Non-Professionals-

Self employed non-professionals include

Trader, Commission agent, contractor etc. 

  • If you apply as a company following are the categories:

Partnership/Proprietorship            

Limited Liability Partnership

Private Limited Company

ELIGIBILITY CRITERIA

Here are the eligibility criteria that are common to most Banks & NBFC’S

Borrower’s Age                                  21 years while applying and no older than 65 years at the time of loan maturity.
Business Vintage Proof                                         Min 1 Year (Profit)
Business ProfileSelf-employed individuals, Proprietors, Private Ltd. Co, Partnership Firms involved in the business of manufacturing, trading or services. 
IncomeEnterprises making profit for the past two years and with a minimal annual income (ITR) of Rs. 2 Lakhs.
Loan Amount                                                       Starting from Rs.50,000 to Rs.1Cr.
Loan Tenure                                                       12-48 months.
Interest Rates ranges from 9.10% to 36%.
Processing Feegenerally ranges from 1% to 3% of the loan amount + (GST)
Credit Score                                                         700+ (subject to different bank policies)

DOCUMENTATION

Identity ProofAadhar card/ Passport/ Driving License/ Voters ID/ PAN card/Passport size photo 4.  
Residence ProofPassport/Any utility bills/ Aadhar Card/ Rent Agreement/ Voter ID Card/ Ration Card/Driving License  
Bank StatementLast 6 months to 1 year.
Income Documents Copy of Income tax return of previous 2 years with balance sheet, profit and loss account, audited by CA.
Proof of ContinuationShop Establishment Certificate (GUMASTA)/ Trade License Certificate/Factory Registration Certificate/GST Registration Certificate/Udyog Certificate Tin Number.
Additional DocumentsComputation of income (CA Certified), audited balance sheet, Assets account, Capital account Profit & loss account.  
Recent bank statement of 6 months.  
PAN card requirement for Companies/Firm/Individuals.
If a loan is in progress then its entire statement.  
Duly signed and filled business loan application by the applicant.  

DO’S AND DON’TS OF BUSINESS LOAN

Here are some points of do’s and don’ts of business loan including what you should and shouldn’t do before applying for your loan and after receiving it.

DO’s

  1. You should make your banking strong and healthy as much as you can.
  2. Before you go to a lender always do your research work and compare products from different lenders available in the market.
  3. You should provide right documents at right place at the right time.
  4. Before applying for business loan, it is essential to know your business cash flow- i.e. the combination of your business income and outgoings. This will boost profit and will help you to repay your EMIs timely.
  5. Clear your dues on time. If you don’t repay your EMI’s on the given period of time, then your credit score could be at risk, which may impact directly to your loan application.
  6. Make sure you have completed all documents formality before applying for loan.

Don’ts

  1. Don’t spend too much on things which are beyond to your limits. For Example, you should only cover your general business purposes and therefore can’t be used for personal expenses.
  2. Don’t put your assets at risk.
  3. Don’t apply to multiple lenders at a time as it will badly affect your credit score.
  4. Also don’t take more than one loan at a time as extending your debts can put your business at risk.
  5. Do not be in a hurry to foreclose your loan as lenders also charge for foreclosure.

REASONS FOR REJECTION OF BUSINESS LOANS

Here are some common reasons behind the rejection of business loan application

Poor Credit History- Your credit score shows a greater impact when it comes to availing business loan. The credit score directly reflects the creditworthiness of a businessman.

Incomplete (false) Paperwork/Documentation- This is also one of the major reasons for rejection of business loan. To get approval for a business loan, an applicant must have to provide relevant information and legal documentation.

Unhealthy (Poor) Banking- The insufficient or inadequate bank balance may lead to failure of  business. So, there are high chances of loan rejection. Thus, it is essential for each and every applicant to maintain higher banking (healthy transactions).

Negative FI- Field Investigation report can be negative due to the following factors (reasons)-

  • Door found locked/ Address not found.
  • Negative comments (review) about applicant.
  • Bad reputation/goodwill.

Poor Cash Flow/Insufficient Cash flow: This is another important factor which deeply affects approval of your loan application. Lenders analyze the cash flow of your business to determine your ability of repayment. If your cash flow is low then it would lead to rejection of your loan application.

Lack of proper business plan: If you do not have a proper business plan, chances are you may also not be clear about how much fund you require and how are you going to use it? Therefore before you present yourself before a lender make sure you have worked on all these factors and are very clear about the funds.

Know the Purpose of your Loan: So, do you want a loan to renovate your office, or purchase or upgrade a machinery, or buy some new technology, or expand your business, or develop a new product, make sure that you are clear about the purpose for which you want the funds. If you are not sure about the purpose of your loan, lenders will not be convinced with your proposal and chances are your application may get rejected.

FAQ’s

  1. What is a Business Loan?

Business loans are taken for the purpose of business expansion and for growth of business.

2. What is the maximum loan amount I can apply for?

Usually, it depends on the borrower’s profile. Lenders offer loans starting from Rs. 50,000 to Rs. 75,00,000.

 In MANTRA we can help you get loans as per your requirement.

3. What will be the rate of interest for my business loan?

The rate of interest is decided on the basis of factors such as your annual turnover, banking transactions, business (proof of continuation) and your credit score.

4. What is the eligibility required for applying business loan?

The applicant must have own at least one year business running in profit. One year ITR should be compulsory filed by applicant.

5. What is the minimum CIBIL score to get a business loan?

Generally, 750 and above is considered a good credit score to avail business loan. Higher the credit score lower the interest rates.

6. What is the maximum tenure for a business loan?

Generally, the tenure for business loan ranges between 12 to 60 months.

7. What are the different types of business loans?

Following are the types of business loans-

  1. Working Capital Loan
  2. Term Loan
  3. Equipment Finance
  4. Loans under Govt. schemes
  5. Loans for women.

8. Who can get business loans?

Business loans are offered to both professionals and non-professionals. This loan is offered to:

Sole Proprietorship

Partnership Firm

Private Limited Companies

Closely held Public Limited Companies

 Societies

 Trusts

9. Is business loan given to Startups?

Yes, start ups in India can get business loans. Many lenders offer loans up to Rs.45,00,000.

10. What are the types of startup business loans that are available?

For startups, lenders offer business loans as term loans and working capital loans. While term loans are given for expansion of business, purchase of machinery, launching new projects etc, working capital loans are given to stock up inventories, pay rent, pay employees’ salaries, renovate office etc. These loans can be taken for a period of 1 – 10 years.

11. Which banks offer business loans for start ups? 

In India, many lenders offer loans to startups to help them fund their business. Some prominent lenders are HDFC Bank, Bank of Baroda, CITI Bank, ICICI Bank and State of Bank of India.

12. Does government also provide loans to startups?

Yes, there are government loans that you can avail for your startup business. Some of the government loans you can avail are:

• Mudra Loan Scheme

• MSME Business Loans

• The Credit Guarantee Scheme (CGS)

• Stand Up India Scheme

• Coir Udyami Yojana

• National Bank for Agriculture and Rural Development (NABARD)

• Credit Link Capital Subsidy Scheme

• National Small Industries Corporation Subsidy.

13. What are the minimum documents required to avail business loan?

Documentation refers from banks to banks and NBFC’s to NBFC’s. Minimum documents are- KYC’s, business vintage proof, banking, one year Income Tax.

14. How can I repay a business loan?

You can repay through post dated cheques, electronic clearance service (ECS) or direct debit.

15. Do I need to provide a collateral or security to avail a business loan?

Since business loan comes under the category of unsecured loans therefore you do not have to provide any security or collateral to avail this loan.