Business Loan

Personal loans are offered 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.

A secured business loan is backed by a collateral whereas no collateral is required for availing an 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.

Lenders usually prefer 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 the 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, collateral (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, 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 collateral (if required), etc. to name a few.

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

Lenders usually levy foreclosure charges at the time of closing the 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 or loan against securities, to finance their businesses.  Existing salaried home loan borrowers may avail top-up home loans, if eligible, to fulfil their business-related financial requirements.

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

The optimum repayment tenure for any business loan depends on the projected 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%. In some cases, borrowers may not be 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 business-related financial requirements, such as business expansion, working capital requirements, etc.

The minimum credit score or credit rating required for availing a business loan may vary widely across lenders. Individual applicants having a credit score of 700 or above may have a higher chance of getting the business loan approved, especially the unsecured ones.

Margin money in business loans refers to the amount that the borrower has to contribute in addition to the availed business loan. When an applicant applies for a business loan to purchase an asset, the bank may approve only 80-90% loan. The 10-20% invoice amount that the borrower pays from his own is known as the margin money. 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 apply for a business loan through online portals of banks and NBFCs or by visiting their branches. You can also visit online financial marketplaces, such as Paisabazaar, to compare business loan options from various lenders and apply for the one that suits your business requirements the best.

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.

The documents required for business loan vary from lender to lender. However, the common documents required by 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 along with 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 various business loan schemes, interest rates usually start from 14.99% p.a. onwards minus the subsidies, if available.

One can apply for a business loan directly through a lender’s portal or by visiting the branch. One can also visit an online financial marketplace like Paisabazaar to compare the interest rates and other features offered by various lenders and apply from there directly.