Business Loan

Lenders offer personal loans to individuals to finance their personal as well as business requirements, except for speculative or illegal purposes. Business loans can only be availed for meeting various business-related requirements such as capital expenditure funding, purchasing raw material/stocks, raising working capital for financing day-to-day business operations, etc.

The major difference between a secured business loan and an unsecured business loan is that a secured business loan is backed by a collateral whereas no collateral is required for availing unsecured business loan.

The various types of business loan schemes offered in India include secured business loan, cash credit, unsecured business loan, working capital loan, term loan, overdraft, letter of credit, bank guarantee, bill/invoice discounting, machinery/equipment finance, special MSME schemes, etc.
All PSU banks and private sector banks and most of the banks belonging to other scheduled bank categories offer these business loan schemes to the businesses with varying eligibility conditions.

Lenders usually require their individual loan applicants to be at least 21 years old at the time of loan application and 65 years old at the time of loan maturity, with his/her minimum business vintage of 3 years.
Apart from these, lenders also set certain specific eligibility conditions related to the credit score/credit rating of the business, minimum margin contribution, collaterals (if required), annual turnover, approvals/registration/licenses/certification, nature of business, IT/GST returns, etc.

The minimum loan amount of business loans can vary widely depending on the lenders and the schemes offered. However, the lenders decide the loan amount eligibility of their applicants depending on the nature of business, repayment capacity, type of collateral pledged, business vintage, margin and annual income of the applicant.

The probability of getting a Rs 50 lakh business would depend on whether you match the eligibility conditions set by the lender.
Some of the factors that a lender may consider while approving a Rs 50 lakh business loan would include annual income, repayment capacity, existing debt, availability of collaterals (if required) and ability to provide margin (if required). .

GST is not levied on the interest component of any loans. However, the GST is levied on the various fees and charges incurred during the pre- and post-disbursal phase of a business loan.

Lenders usually charge foreclosure charges on preclosure of business loans. However, as per RBI regulations, lenders are not allowed to charge any foreclosure charges on business loans offered at floating rates to individual borrowers.

Business Loans are usually not offered to salaried individuals. However, salaried individuals can avail loans having no end-usage restriction, like personal loans and loan against securities, to finance their businesses.
Salaried individuals who are existing home loan borrowers can also avail top-up home loans, if eligible, to fulfil their business related financial requirements.

Self-employed individuals, self-employed professionals, partnership firms and MSMEs are eligible for availing small business loans.

The optimum repayment for any business loan would depend on the expected future cash flows of the business and the repayment structure of that business loan.

For floating rate business loans, the lender does not levy any pre-closure or part-prepayment charges. The pre-closure charges for fixed rate business loans may vary from 0%-6% with a lock-in period of 12 months.

The part-prepayment charges for fixed rate business loans may range up to 5%. Borrowers are not allowed to part-prepay their business loans within the first 6 months from the date of loan disbursement.

You can get a business loan of Rs 2 crore depending on the nature of business, business vintage, credit score of the applicant and the type of collateral pledged by the borrower.

MSME loan is a credit facility offered to Micro, Small and Medium Enterprises to meet the business related financial requirements, such as business expansion and working capital requirements.

The minimum credit score or credit rating required for availing a business loan may vary widely across lenders. In case of credit scores, individual applicants having a credit score of 700 and above may have a higher chance of availing business loans, especially the unsecured ones.

Margin money in a business loan refers to the amount that the borrower has to contribute from his own resources for financing goods or services through his business loan. The rest of the cost is financed through the loan proceeds.

For example, assume that a borrower seeks to finance an equipment purchase of Rs 10 lakh through a business loan and the lender asks for a margin money of 25%. In this case, the bank will provide a loan of  Rs 7.5 lakh to purchase that equipment while the balance cost of that equipment, i.e. Rs 2.5 lakh has to be arranged by the borrower himself.

You can get a business loan through the official website of banks and NBFCs or by visiting bank branches. You can also visit online financial marketplaces like Paisabazaar to compare the interest rates offered by various lenders.

Business loans can be used for meeting the business requirements including working capital requirements like purchasing inventories/raw materials, salaries/wages, rent, etc. and capital expenditure requirements like purchasing machinery and equipment, acquisition of other fixed assets and for carrying out other activities for business expansion.

Business loan applicants usually consider the lenders offering the lowest interest rates for availing business loans as it would help them in saving the overall interest cost.

Apart from the business loan interest rates, applicants also consider various parameters, such as loan tenure, loan amount, margin, type and value of collaterals, charges, loan guarantee requirements, repayment period and the turnaround time for loan disbursal while looking for the best bank for business loans.

Instead of visiting the official websites of multiple lenders, applicants can make their search easier by visiting online financial marketplaces like Paisabazaar to compare the business loan interest rates and other features offered by various lenders.

The documents required for business loan vary from lender to lender. However, the common documents required by the lenders while applying for business loan include KYC documents (Aadhar card, PAN card, Voter ID, Driving License, Passport), address proof (utility bills, telephone bills, electricity bill, sales agreement, registered lease deed, NREGA card), proof of residence or office ownership, business continuity proof, business registration proof, latest ITR alongwith income computation, certificate or declaration of sole proprietor, copy of partnership deed, certified copy of AOA, MOA and board resolution, etc.

MSMEs, Limited Liability Partnership Firms, Proprietors, self-employed professionals (CA, CS, doctors, architect), self-employed individuals, Private Limited Companies, Public Limited Companies, etc., are eligible for a business loan.

However, the eligibility criteria would vary across lenders depending on the business loan schemes to be opted for.

Business Loan interest rates would vary widely depending on the lender, the scheme opted for, the type of collateral pledged for and the subsidy provided to the applicant, if eligible, from the various government agencies.

While most lenders have not publicly disclosed the interest rates applicable on their various business loan schemes, the interest rates usually start from 9% p.a. onwards minus the subsidies, if available.

Business loan applicants can apply for a business loan directly through the official website/app of banks and NBFCs or by visiting bank branches. Applicants can also visit online financial marketplaces like Paisabazaar to compare the interest rates and other features offered by various lenders.