Business Loan

A business loan is simply the loan advanced to businesses. Both banks and NBFCs provide financial assistance to businesses in the form of business loans as per varied terms and conditions. Banks and NBFCs provide various kinds of business loans, some with lenient repayment terms, some without collateral while some could be with lower interest rates but with security and for a long term period. A business loan is also called commercial loan, and all kinds of business entities (sole-proprietor, partnership, a private company, public company, etc.) can avail a business loan.

The current lowest rate for an unsecured business loan is 13.50%. The rate of interest on your business loan is determined on factors like age of business, current profits, future prospects of the business, the nature of loan (secured or unsecured loan), tenure of the loan, etc. In case the borrower is self-employed, sole-proprietor or partnership firm, then the credit score of the business owner in case of unsecured loan also becomes a crucial factor.

The following are some top banks for a business loan in India:

1. SBI: SBI is one of the leading public sector banks for business loans in India. Its small business loan product is a drop-line facility with minimum ₹ 50,000 and maximum up to ₹ 5,00,000. It covers manufacturing businesses along with self-employed professionals and retail-wholesale traders.

2. HDFC Bank: HDFC Bank is one of the top private sector banks that provide business loan for working capital and other business requirements. The maximum loan amount offered is ₹ 50,000 and the minimum business turnover required is ₹ 1,00,00,000. Also, the business must be in profit in the last two years. It provides a business loan to self-employed professionals along with manufacturing, trading and service businesses.

3. ICICI Bank: ICICI Bank unsecured business loan unsecured business loan interest rate starts from 16.49%. With its comprehensive business loan products for small and medium businesses, ICICI Bank has all kinds of business loans that you can require, from working capital requirements to business expansion.

4. IIFL: When it comes to a business loan from NBFCs, IIFL is the first name to pop-up. It provides business loan for needs such as working capital, business expansion, maintaining inventory, unplanned requirements, etc. The maximum loan amount available for a small business loan is ₹ 1,00,000.

5. IndusInd Bank: Indusind Bank offers unsecured business loan on the basis of business financials. Its current business loan rate starts from 14.00%. The amount of business loan that can be taken from Indusind Bank ranges from ₹ 50,000 to ₹ 15,00,000.

6. Kotak Bank: Kotak Bank is one of the popular private sector banks for small, medium and large business requirements. The interest rates of Kotak Bank business loan starts at 16.00%.

We can help you in your quest to get the right business loan deal; all you have to do is apply for a business loan with us.

The following are some key features of business loan that you should know about:

• Interest Rate: In the case of an unsecured business loan or popularly known as business loan, the rate of interest once determined remains fixed throughout the tenure. This makes it easy to plan your budget and maximise your financials.
• Loan Amount: While most lenders advance loans for up to ₹ 50 Lakh, some also provide loans up to ₹ 1 Cr or more.
• Collateral: To avail a business loan, no collateral is required. The banks and NBFCs check credit score, financials of the business, profit, etc. before sanctioning the loan.
• Minimum Paperwork: The paperwork required for an unsecured business loan is minimal. You can visit the website of the lender and apply for the loan or even apply through any loan aggregator.
• Processing: The process of business loan is swift. After your application is submitted with proper documents, they are verified and assessed. Then a bank representative might meet you, or you may be called for a meeting which will lead to the sanctioning of a loan and then disbursal.
• Repayment Tenure: While availing a business loan, you can choose the tenure for your loan by yourself. In some cases, it can be adjusted later on as well. Such flexibility in repayment tenure makes it even more attractive.
• Repayment Method: The business loan also comes with a flexible repayment method where you can either choose EMIs or lump sum repayment. Also, prepayment and foreclosure of the loan are also available just after paying the first EMI with most lenders.

Getting a business loan is fairly easy with an online application and approval process. A business loan can be availed in following simple steps:

• First of all, determine the reason for which you need a business loan.
• Compare various factors of different banks or NBFCs such as interest rate, business vintage, net profit, minimum turnover required etc.
• Assess the required eligibility criteria with your present business condition to estimate the eligible loan amount.
• Select the lender whose eligibility criteria you are meeting.
• You can choose to apply for the loan online through the lender's website or through an online aggregator or visit the branch. Carry the required documents with you while visiting the branch.
• If you apply for loan online, bank official or online marketplace advisor will call to discuss loan eligibility, loan rates, processing fee and prepayment process.
• Once you agree to proceed with the loan application, you will need to submit your income documents online or bank's representative will visit your residence or office to collect your documents and do a residence/office verification.
• Bank will give you an approval on your loan application in 2 to 3 days of receiving all documents and after physical verification. The loan can get disbursed immediately after loan sanction and signing of the agreement.

Broadly the business loan can be categorized as follows:

1. Trade Loan: The trade loan can be availed by a sole proprietor business, a partnership firm and a private limited company. It is advanced to meet requirements related to the continuation of the business. There are three types of trade loan:

• Working Capital Loan: It is provided to the business for meeting regular cash requirements. The loan does not require any collateral and the interest is charged based on the amount utilized and not on the sanctioned amount.
  The amount obtained as working capital can be utilized only for the said purpose. The banks usually take complete control of cash, receivables, business debtors, etc. and also have the right to revoke the loan in case the amount is not utilized as per the set parameters. It is the most readily available loan because of the reason that banks get a lot of control over the functioning of the business, its cash flow, etc.
• Overdraft: Sometimes, an overdraft is based on securities, and sometimes they are not. The decision is taken by the bank based on the cash flow, credit history, any previous relationship with the bank, the size of the business, its profitability, etc. The bank sets a limit for the overdraft, and the interest is charged based on the utilized amount. The amount from overdraft can be used for any purpose; there is no end-use restriction or interference from the bank.
• Term Loan: The third type of trade loan is a term loan, and it is available for both commercial and personal purposes. It works like a personal loan where an amount is disbursed, and it is repaid in the form of EMIs through a specific time period. Its popularity is mostly for its feature of being available in foreign currency. This makes it easier to finance export.
  The maximum tenure for the loan is 5 years, and some of the key documents required for its domestic loan variant are; Incorporation certificate, financials of the last three years, KYC of promoters, PAN card of the company along with MOA and AOA.

2. Professional Loan: This loan type is extended to self-employed professionals like Doctors, Chartered Accountants, Lawyers, etc. The loan is provided based on their credit history, and the maximum amount varies from bank to bank. The requirement of collateral is mandatory in such loans, as mostly it is advanced based on the rapport of the individual and income proof. However, in case the required amount is high, then collateral may be asked, which can be LIC policies, Bank deposit, agricultural land, Government Bonds, etc.

Some key documents that can be required for availing the professional loan are Professional certificate, last 12 months bank statement, last 2 year’s ITR, PAN card, plan of utilization of money or expanding business, etc.

Parameters	Secured Business Loan	Unsecured Business Loan
Collateral	This loan is secured in nature. For example, Home Loan, Loan against Property, Car Loan	This is a collateral free loan, given on the basis of credit history.
Interest Rate	Offered at lower interest rates	Offered at higher interest rates
Rate Type	Rates are fixed and floating in nature	Rates are fixed in nature
Loan Amount	Higher Loan amount eligibility	Lower loan amount as compared to secured loans
Loan Tenure	Higher tenure of 5-30 years	Lower tenure of upto 5 years
Risk	Lower risk as these are secured in nature	Higher risk due to unsecured nature

The eligibility criteria to get business loan are:

• Age: Minimum age of borrower must be 21 years to get this loan.
• Business Age/Vintage: For self-employed professionals, the minimum business existence required is 3 years and for business it is 5 years.
• Turnover: Minimum turnover required is ₹ 50,00,000. However, some banks give business loans at a turnover of ₹ 12 Lakh.
• ITR: Last 2 years of Income Tax Return is required to get this loan.
• Credit Score: Banks or NBFCs ask for a minimum score of 650 to approve this loan.
• Banking Stability: Minimum last 6 months of bank statement is required.

A Business Loan EMI is dependent on the loan amount, business loan interest rate and tenure. With the help of an EMI calculator, you can check the amount of EMI that you can comfortably service. Enter the details like required loan amount, interest rate and loan tenure, you will get the amount of EMI and total interest that you will be paying in the tenure. You can also change the details to check the business loan EMI for different amounts or tenure.

The following are the key government loan schemes for businesses:

• PSB 59 Minutes Loan: One of the most popular business loan schemes from the government is the MSME Loan in 59 minutes. The scheme was first announced in September 2018 to provide financial assistance and encouragement to MSMEs. Public sector banks provide the loan under this scheme. The actual process takes 8-12 days; however, the approval or rejection of loan application is done within 59 minutes. The maximum loan you can avail under the 59 minute loan scheme is ₹ 5 Cr.
• MUDRA Loan: With the motto of ‘funding the unfunded’, the Government of India established Micro-units Development and Refinance Agency to provide funds to micro-business units. The maximum loan available under the scheme is ₹ 10 Lakh. The MUDRA Loan can be availed through private banks, public sector banks, co-operative societies, rural banks and scheduled commercial banks which are covered under the scheme. The financing under MUDRA is structured under three categories; Shishu (up to ₹ 50,000), Kishore (up to ₹ 5 Lakh), and Tarun (up to ₹ 10 Lakh).
• National Small Industry Corporation Subsidy: Under the NSIC subsidy scheme, MSMEs are provided with raw material and marketing assistance. The raw material assistance covers both indigenous and imported raw materials. Whereas, marketing support consists of both informational and fund support to help MSMEs in enhancing their competitiveness. The support includes cost-free tenders, no security deposit, financing of land and building, marketing intelligence, etc.
• CLCSS: The Credit Link Capital Subsidy Scheme allows small businesses to upgrade their processes by financing technological upgradation. The primary purpose of the CLCSS is to reduce the cost of production for goods and services among small and medium enterprises so that they can be competitive in terms of price in both local and international markets. It offers 15% capital subsidy to the businesses who are eligible, but the maximum subsidy that can be availed is limited to ₹ 15 Lakh.
• CGTMSE: The Credit Guarantee Fund Trust Scheme for Micro and Small Enterprises was launched in 2000 as a monetary support scheme for micro and small enterprises. It provides the collateral-free working capital loan to both new and existing businesses. For availing loan more than ₹ 10 Lakh, primary security of land or building is required. Such accounts are covered under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

In order to avail a business loan, the following documents are required at the time of submitting your application and during the processing of your loan:

• Identity Proof: First of your personal identity proof is required for which you can submit either of; Driving License, PAN card, Voter Card, Passport.
• Address Proof: Next, your address proof is required which can be either of; aadhaar card, ration card, electricity bill, etc.
• Business Proof: For business existence proof you can submit whichever is applicable; partnership deed, incorporation certificate, registration certificate, GST registration, PAN card of the entity, MOA, AOA, etc.
• Income Proof: Now, you need to submit the income proof or financials of the business which includes; last 2-3 years audited financial statements (Balance sheet and P&L account), last 2 years ITR, bank statement of last 6 months at least.

✅How can I get a business loan?

As for availing secured business loan and business loan under the government scheme, both new and existing businesses can get it. However, to avail unsecured business loan from banks at least 3 years of business vintage is mandatory.

✅What is a good credit score to get a business loan?

A good credit score is generally the score that is above 720. A business loan is no different, a score above 720 falls under a good credit score, and it is a good enough score to avail business loan.

✅What is the average interest rate on a business loan?

The average interest rate on a business loan starts at 13.50%.

✅What is the minimum turnover requirement for a Business Loan?

To avail, the unsecured business loan minimum turnover requirement is ₹ 50 Lakh. Some banks give business loan at a minimum turnover of ₹ 12 Lakh.

✅What are the minimum and maximum loan limit offered for a business loan?

The minimum loan limit for a business loan is ₹ 50,000; while the maximum limit for a business loan is generally ₹ 5 Cr. However, some may provide even more.

✅How long do business loans usually go for?

An unsecured business loan takes around 12-15 days to get fully processed and disbursed into your account.

✅Do banks give loans to start a business?

Business loans are advanced for various purposes related to business-like, working capital requirement, inventory maintenance, making payment, business expansion, etc. But, starting a business is not one of the purposes for which banks provide business loans. However, you can instead opt for personal loan or loan against property or gold to avail funds you need for starting a business.

✅How does it affect my co-applicant if I default in business loan?

If you do not pay the loan on time then your co-applicant’s credit score will go down as the default will affect his/her CIBIL rating as well.

✅Can I get a business loan despite a poor credit score?

If you have a poor credit score, then the chances of loan approval are very less. However, some banks offer business loan at low credit score but at high interest rate and bank may also ask you to add a co-applicant with good credit history who can take responsibility if you fail to repay the loan.