What is a Business Loan?
Any loan which is taken to fulfil the financial needs of any individual/firm or an organisation to start up a new business or enterprise or for expanding an established business, providing abundant opportunities for employment at quite a low cost of capital is a BUSINESS Loan. Its full form is Small and Medium Enterprise Loan and it helps in revolutionising and the industrialisation of small towns, rural areas, and backward places. These kinds of loans which are generally unsecured loans, when taken by small and medium sectors of business, enhance the domestic production and GDP, thus increasing the rate of exports, imports, and savings, finally contributing to the development and growth of the country at large.
What are the Features of Business Loans?
Anyone looking for a quick finance option to start or renovate a business of his own can apply for a Business Loan which can also be applied online. These loans can be customised as per individual needs and is an ideal option for today’s competitive and developing business economy of India. Let us understand the relevant features of these loans:
- Value can be up to Rs. 2 crores: These loans start from Rs. 50,000 and can go up to a value of Rs. 2 crores. These can be given to micro, small and medium level business organisations.
- Loan granted in 3 days : When the applicant applies for a business loan online, it is processed the very same day and gets immediate approval depending on the documents and credibility of the applicant. After the appropriate verification, the loan is disbursed to the applicant within 3 business days.
- Online Loan can be applied for – To expedite the approval, investigation, verification, and disbursal, it is highly recommended to apply for the loan online. This can fast track growth and open doors to new opportunities.
- BUSINESS Loans come without collateral: These loans are generally unsecured and do not need any security or collateral. These are completely disbursed on the credibility, goodwill, and paying capacity of the applicant and are easily given out.
- Variation in Interest Rates: As opposed to banks and other NBFCs, BUSINESS loans come with a comparatively lower interest rate which varies from 8.40 % to 24% per annum, depending on a multitude of factors like employment type, amount of loan required, the collateral is given or not, the profile, goodwill, and creditworthiness of the applicant, his credit score, repayment tenure, and capacity.
- Flexibility in the tenure of Repayment – It has flexible options to repay the loan starting from 1 month and which goes till 36 months. The applicant may also choose a weekly or a bi-monthly option of repaying the loan as per his business and his incoming capital/profits.
- No Prepayment charges – After paying the first EMI, if the applicant has arranged for funds and wants to repay the loan, he will be able to, without paying anything extra or additional charges attached to the repayment
- No Hidden Costs – Besides a processing fee which is about 1-2% of the loan amount, there is no other hidden cost attached with BUSINESS loans and the terms and conditions are quite clear.
What are the Benefits of Business Loans?
There are many advantages of applying for a Business Loan:
- Raises the credibility of the applicant in the market: With the easy availability of the loan, improves the capital funding, availability of resources, and thus the profitability and liquidity of the firm. Thus, it enhances the overall creditworthiness of the applicant and increases his goodwill.
- Helps the businessman or the firm to manage his company and business better: BUSINESS loans help in stabilising, streamlining, expanding, renovating, and restructuring the business, working capital, employment opportunities and cash flow of the business.
- He remains in control of his business: After getting funds as a business loan, the applicant remains in charge and monitors and controls the business, its applications and its funding plus profitability in the best possible manner.
- The working of the business moves swiftly and smoothly from planning to execution: With better funding opportunities, the planning converts into implementation and the business is in an up and running mode, generating opportunities and earning capacity of the applicant thus generating profits for him.
What are the Different Types of Loan Options Among Business?
Different Categories of loans under the BUSINESS segment are as follows:
- Working Capital Loans: Under this category, the applicant applies for the loan to gain liquidity and running capital for his business. The amount may help him create employment opportunities, meet his recurring expenses, get rid of financial crises, release him of other debts ad simply focus on the growth of his business.
- Term Loans: These loans vary from 5 to 15 years and are generally taken without any collateral. These are borrowed for a certain reason and certain business and are used diligently to solve the purpose.
- Equipment Financing: These are generally provided by banks or NBFCs to buy equipment tools and other necessary requisites for a business. These loans can go up to a value of Rs. 25 crores and helps the applicant to explore more and get competitive and modern by purchasing the latest equipment. This is treated as collateral and the rates of interest are generally lower.
- PMMY – Pradhan Mantri Mudra Yojna: This is launched by the government of India to help businesses to enhance their profitability and come in three different forms:
a) Shishu loans which are up to the value of Rs. 50000 (small loans)
b) Kishor category which ranges from Rs. 50000 to Rs. 5 lakhs
c) Tarun Category which varies from Rs. 5 lakhs to 10 lakhs
The key element of these loans is to use the funds to expand the business, buy appropriate machinery, vehicles, tools, and financially supplement the business.
- Start-Up India Scheme: This BUSINESS scheme is specifically designed for scheduled caste and scheduled tribe applicants and is extended to female entrepreneurs too. The variation of BUSINESS loans is from Rs. 10 lakhs to Rs. 1 crore and in case of any non-individual enterprise, at least 51% of the share should in the name of a scheduled caste/scheduled tribe applicant or a female to avail the benefits of the BUSINESS category.
What is the Eligibility Criteria to Apply for Business Loans?
|Who Can Apply for the Business Loan||Individual proprietors, self-employed, partnerships, private limited companies, for any business services, trading or manufacturing|
|Age of the Applicant||Minimum age – 21 years and maximum years – 65 years|
|Minimum Annual Income of the Firm||Rs. 1.5 lakhs|
|Minimum Turnover of the Firm||Rs. 40 lakhs|
|Profit Status||For the past 2 years, the firm should have been making profits|
|Experience of Business/Firm||The firm should be in a stable business for 5 years|
What are the Documents Required to Apply for Business Loans?
|ID Proof||Aadhar Card, Passport, Voter’s ID, PAN Card, Driving Licence, etc.|
|Address Proof||Aadhar Card, Voter’s ID, Passport, Driving License, etc.|
|PAN Card||Individually of individuals and partners and of the firm|
|Financials of the Company||GST registration certificate required and Returns should be provided for the current and previous financial year.|
|Bank Statements||Last 6 months bank statements|
|Proof of Business||Business entity proof, articles of association, shops and establishment certificate, partnership deed, incorporation certificate, etc.|
|Application Form||With all relevant details as mentioned above and should be duly signed and stamped|
- How to Effectively use Business Loans?
Following are some smart ways to utilise business loans:
1. Inventory Management – Approximately 31% of the applicants use the BUSINESS funds to invest in the inventory of the firm like buying modernised machinery, tools, replenish the stock, manage dips, new product samples, and much more.
2. Purchasing New Plant and Machinery: This requires heavy funding of up to Rs. 1 crore and can be used to buy updated, upgraded, modern, and technologically sound plant and machinery to expand or start a business.
3. Capital Management: Many take the loan to add up to the working capital of the firm which caters to day to day expenses, salaries, other employment opportunities, marketing and sales, seasonal fall outs, inflation, etc.
4. Consolidating the Debt: There could be numerous sundry debts that a new firm or an established business may have taken. This is costly for the businessman as it means more interest and a higher amount of principal. It is best to consolidate all these small loans as one consolidated debt and pay off the smaller ones to reduce the interest rates and enhance the working of the firm
5. Further Investment in Sales and Marketing: It is imperative to invest in propaganda and positive marketing of the firm to attract as many customers a possible and to make the firm and its products a household commodity. This can only be done after religious and diligent marketing strategies which required funding that can be done by taking a Business loan.
What are the Do’s and Don’ts When Applying for Business Loans?
There are certain do’s and don’ts that need to be taken into consideration before applying for a business loan:
a) To check and maintain the credit score
b) Sorting out and arranging for proper documentation
c) Prepare a Business Plan and be ready with all details that may be required
d) Assess your requirements. Any over or under application of loan amount may result in future losses and increased debt
a) One should not apply with various lenders and should only stick to a few lenders.
b) Existing debts should be immediately repaid, and the burden of debt should be reduced
c) Should be careful and diligent in choosing the right lender in terms of extra fees, interest rates, and documentation, approval and disbursal procedures. Thorough scrutiny and investigation should be done by the applicant.