BUSINESS LOAN
A business loan is a specially tailored funding option for enterprises that require financial assistance for various business-related activities. From startups needing initial capital to established companies planning to scale up their operations, business loans can come in handy at every stage of a business’s lifecycle. They are typically provided by financial institutions like banks, NBFCs (Non-Banking Financial Companies), and other lending entities.
Business loans can be either secured or unsecured. Secured business loans require collateral, such as property, machinery, or inventory, which the lender can claim if the borrower fails to repay the loan.
On the other hand, unsecured business loans do not require collateral, making them more accessible for businesses that do not possess substantial assets but need funds. These loans are generally riskier for the lender, and therefore, may have higher interest rates.
In a dynamic economy like India, business loans play a crucial role in facilitating the growth and expansion of businesses across various sectors. Whether it’s investing in new machinery, managing cash flow, funding research and development, or financing a new project, a business loan can provide the necessary financial boost.
Moreover, with the rise of digital lending platforms, the process of securing a business loan has become simpler and more straightforward, making it easier for businesses to meet their financial objectives.
Business loan can be divided into 2 different loan types
Term Loan
A term loan is a traditional form of business financing where a lender provides a specific amount of money to a business for a fixed term or period. The borrower agrees to repay the loan, typically with interest, through regular installments over the agreed-upon duration. Term loans are often used for specific purposes like buying equipment, expanding the business, or funding other significant projects. They have a fixed repayment schedule.
The loan amount that one can avail under term loan ranges from 3 Lakhs to 2 Crores.
Interest rates charged on term loans is typically between 15-22%. The minimum interest rate, however, is 14.75%.
The duration of a term loan is usually between 12-60 months.
Dropline Overdraft
A dropline overdraft is a type of business loan that works like a flexible credit account. When a business has a dropline overdraft, the bank or lender approves a maximum credit limit. Instead of receiving a lump sum of money upfront like with a term loan, the business can withdraw funds as needed, up to that approved limit.
The amount for Dropline Overdraft ranges from 3 Lakhs to 75 Lakhs.
Interest rate on dropline overdraft usually falls between 18 and 22%.
Although, unlike term loans, Interest on Dropline OD is only charged on the amount used.
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Eligibility Criteria
The eligibility criteria for business loans in India can vary depending on the lender and the type of loan you are applying for. However, there are some common factors that most lenders consider when evaluating loan applications for businesses.
- The business should be registered in India.
- The firm should be at least 3 years old.
- Appropriate credit score depending on the lender’s requirement
You also have to fulfill the following document requirements while applying for a business loan in India:
- KYC (firm and individual )
- Bank statement of the last 12 months
- ITR along with complete financials
- And any additional documents based on the lender’s requirements.
Loan Amount & Interesr Rates :
The amount for business loans typically depends on the business’s financial health, creditworthiness, and the lender’s policies. In India, business loans can range from Rs. 50,000 to Rs. 5 crores, though it can vary based on the lender.
Interest rates on business loans can be fixed or variable and are influenced by factors such as the business’s credit score, financial health, loan tenure, and the lender’s policies. Interest rates generally range from 12% to 28% per annum.
Loan Repayment And Tenure :
Business loans in India typically have a repayment tenure ranging from 1 to 5 years. The borrower needs to repay the loan amount plus interest in Equated Monthly Installments (EMIs). The EMI depends on the loan amount, interest rate, and tenure. A shorter loan tenure results in higher EMIs but can reduce the overall interest cost.
Application Process And Documentation
To apply for a personal loan, you need to follow these steps:
Research and compare
Look at factors like interest rates, processing fees, loan amounts, tenures, and customer reviews.
Check eligibility
Review the eligibility criteria of the lender to ensure your business meets their requirements.
Gather documents
Arrange necessary documents such as business license, income tax returns, profit and loss statements, balance sheets, and other required financial documents.
Apply online or offline
Visit the lender’s website or branch to fill out the application form and submit the necessary documents.
Verification and approval
The lender will verify your documents and evaluate your business’s financial health and creditworthiness. Upon approval, the lender will present you with a loan offer.
