Features for a Business Loan
A Business loan is unsecured funding issued to self employed persons without any guarantee, solely for the purpose of meeting expenses for running their establishment and related Business needs.
Who is eligible to apply for a Business Loan?
All Indian citizens over the age of 25 years having a registered business are eligible to apply: the maximum age for repayment is of the loan is 70 years. The business vintage must be 5 years or more to be eligible for a loan with a profitable trend.
What is the amount issued as a Business loan?
Business loans are issued from ₹ 1 lakhs onwards up to ₹ 10 Crore depending on the requirement, turnover and volume of the business. The quantum of business loan depends on the valuation of the business, annual profits of the business, and the industry within which the business operates.
What is the tenure applied for a Business loan?
As a Business loan is an unsecured short term loan the repayment tenure for a Business loan is from 12 months to 36 months: for self employed professionals tenure of 48 months can be applied. The tenure is fixed as per the Loan amount and the repayment ability of the applicant.
What can you use your Business loan for?
A Business Loan is issued by Banks and NBFC’s specifically for the purpose of Business expenses and expansion: Loans may be applied towards;
The daily capital expenses required for running of the unit: funding the daily running of the business is necessary for the smooth management of the business. Funds via business loan can be used for managing daily business expenses.
For funding of new projects: all establishments need to innovate, diversify and expand in order to survive and grow. A Business loan is readily available to invest and enable the new projects in order to grow.
A Business loan is available for Purchase of New machinery and to upgrade the existing manufacturing: as maintenance of existing infrastructure is essential for production units. With purchase of latest equipment to keep pace with new trends
To invest in an ancillary unit for your expanding Business may, as when additional work opportunities come it will be necessary to add additional working space. Costs for the same can be funded easily via a Business loan.
Approved Segments for a Business Loan
Self employed segments where the business profile and portfolio are positive are the preferred sourcing criteria which include:
Small and medium size enterprises functioning as proprietorship firms or Limited or private limited firm: engaged in manufacturing of goods, distribution of raw materials, and affiliate industries.
The growth in the services industry has been unprecedented Professional Services that are offered Loans for their business under this category are IT/ITES, Hotels and Restaurants, Hospitals and Clinics, Education, Automobiles, Tours & Travels.
Self employed professionals such as Doctors, Chartered accountants, I T professionals or Interior decorators who work individually or have companies or firms.
Wholesalers Traders and Retailers
Wholesalers are also stockists who ware house and distribute goods to traders and retailers. Goods are further sold in the in the open market, funds as a business loan to are forwarded to such individuals and companies to maintain the chain.
Eligibility Criteria for a Business loan
The eligibility for a Business Loan depends on the valuation of the Business, the industry and the number of years in operation. Lenders will check the cash flows, total outgoings and the current credit being used. A financial analysis will be done professionally prior to approving the loan.
To be eligible for a Business loan the Business entity must be in existence for a minimum of 5 years or more with the Income Tax returns filed for 3 years.
The Business must be profitable with a turnover of ₹ 1 crore or more per year, with visible positive trend and increase in turnover.
It is mandatory for the company to have a credit history of 12 months or more: the CIBIL score should be above the required benchmark.
The financials of the company should be in order; the borrowings should be easily paid back as per the income.
The Banking should be healthy, with the average balance maintained above the required benchmark. There should be no bounces cheque or EMI returns in the statement.
A self owned property which can be residential, commercial or industrial registered in the name of company or any of the directors is required.
Benefits of a Business Loan
Banks focus on providing credit amenities via business loans in order to promote comprehensive growth of small and medium size businesses. Applying for business loan provides the following benefits:
A Business loan is processed without any security or guarantees on basis of the financial of the company and documentation, the profitability of the business being the main criteria.
Finance achieved via a Business loan can be used to further any Business activity or expenses whether it is for daily needs or further expansions without any encumbrance.
A Business loan is processed within a week, contributing to manage unexpected expenses: making funds available for you when you need them most.
Repayment of the Loan taken can be made conveniently through equated monthly installement, over a flexible tenure from 12 to 48 month
Unlike investments from private equity firms or entities, there is no need for profit sharing funds appended as a business loan can be used as required.
The rate of Interest is reasonable as compared to funding from local money lenders, charged @ monthly reducing Balance.
Business Loan Charges
The Rate of interest charged for a Business Loan ranges from 13% to 25%, levied at a monthly reducing balance, based on the following criteria:
The Loan amount sanctioned:
Increased loan amounts are sanctioned at a lower rate of interest. Discounts are offered if the applicant applied for are larger loan amount and can repay the same in a shorter tenure.
The profile and the industry of the applicant:
Banks will be forthcoming in lending and giving a better Rate of interest to progressive industries featuring in the approved category. Professional applicants such as Doctors, Architects with higher qualifications from a recognised institute are offered better rates.
The credit history and CIBIL score:
A Business with a previous history of credit that has been successfully repaid and current credit lines being well managed are preferred customers for lending: will therefore be offered better rates of interest.
Existing Infrastructure and stocks of the Business:
Lenders are also liable to lend with better terms to a Business being well situated and functioning in an organised manner with requisite stocks and insurance in place.
The Processing fees:
The Processing fees or the file charges range from 0.25% to 2.5% of the loan amount, no charges are to be paid up front. Discounts are offered to applicants with previous or ongoing relationship and a good CIBIL score.
Listed Below is the Rate of Interest for major financers.
||Rate of Interest
||1% to 2.5%
||1% to 2.5%
||2% to 3%
||2% to 3%
||2% to 3%
||2% to 3%
||2% to 3%
Documents Required For Processing Your Loan
Business Loans are processed as per the Profile of the Applicant /nature of Business Entity
Private Limited/Limited Company
Application form signed with passport size photograph of all applicants.
Photo I.D. of All Individual Applicants
Copy of any one of following documents is Eligible as a Photo I.D
Pan Card/Aadhaar Card/ Passport/Driving Licence
For Non Individual business entities valid ID proof documents
Pan Card/Sales tax Certificate/Vat registration certificate/GST registration certificate
As an Address Proof for Individuals
Aadhaar Card/ Passport/Driving Licence/Mobile or Land line bill
Business Continuity proof for 3 years vintage
Partnership deed/MOA & AOA with certificate of incorporation
Shop & Establishment Certificate
Service Tax/Sales Tax/ Vat registration/ GST registration certificate
Audit report with nature of business & I.T return
Previous 6 months Bank Statement
3 years old Business, Professional or Practising documents
Audit report with nature of Business
As Ownership Proof
Utility Bills/Property Tax Receipts/Copy of Title Deed
Income Tax Return for the last 2 years with audited Financials.
Income Tax Return with computation of Income for the last 1 year for all Partners/Directors coming on the Loan
6 Months Bank Statements for all Business operating accounts.
6 Months Savings account Statements of Proprietors.
Statements of all loans taken to date