As the name suggests, a Business loan is a short term financial instrument exclusively designed for business purpose and advanced to self-employed proprietors as well as entities such as partnerships, private and public limited companies. A Business Loan can be utilized for various business reasons such as to maintain business operations, invest in equipment, set up a new branch and so on. Business loans are usually lent based on the business turnover and IT returns filed for 2 or 3 years.
One of the major benefits of Business loans is that they are usually unsecured with no need for collateral or guarantors and most banks offer pre-payment facility with minimal charges. Another important benefit is that if the business is a corporate entity and there is a default, the burden is not solely on the owner but on the company as a whole. The company is liquidated to clear the loan in such an extreme scenario.
Components of a Business Loan
Loan amount advanced from 3 lakhs to 75 lakhs Simple documentation as this is an unsecured loan Loan tenures from 12-48 months and can be repaid through EMIs Rate of Interest between 17-25% and differs based on eligibility of each applicant
Capital is a vital component for the success of any business today. Whether a business is in proprietorship or big organization, finance holds the key to its growth, and managing finance is certainly not a child's play. Keeping all this in mind, several institutions have come up with business loans to help budding and existing entrepreneurs. Very frequently, every company has to face a make-or-break situation which calls for immediate investment to reap long term benefits. If one is not having the finances at that time, he might well opt for a business loan which is designed specifically to fulfill urgent business requirements. These loans not only help in expanding a business, but also play a vital role in modernizing and improving small as well as medium scale business.
Business Loans are offered in two types, Secured and unsecured.
For a Secured Business loan, the borrower needs to pledge something as collateral or security against the loan amount taken. Be it raw material or finished products, land or machinery, anything can be kept as collateral in agreement with the lending party. The borrower can also offer cash advance as collateral as it offers more liquidity and the loan can be availed at lower interest rates and flexible repayment options.
In case of unsecured business loans, here is no requirement of any collateral from the borrower. However, while availing an unsecured business loan, the borrower needs to pay a high interest rate. Moreover, the loan amount is taken for a smaller tenure when compared to a secured loan. According to the their tenure, business loans can be further diversified. To meet the temporary needs of a business like short term working capital, a short term loan is most apt one, with the repayment time period of a year. An Intermediate Loan is necessary for starting up business to buy inventory, equipment and also increase working capital. A Long term is necessary for well established business houses who wish to expand, increase their fixed assets or related business acquisitions, with terms that runs for a period of 3-5 years.
Furthermore, drawing the thin line between critical needs and expenses that can be put off till a better financial situation prevails holds the key to prevent one from any financial predicament. Making a single hasty decision without any idea of its impact in your business might prove to be detrimental in the long run. Therefore, one must be very clear of his actual need and necessities for enhancing and improving his business by borrowing the rights loans with a detailed insight of its pros and cons.
Check the Business Loan Financial Eligibility: -
The bank or financial institute will offer the business loan based on the information provided by you to determine your financial eligibility. The financial eligibility is based on income, age, existing loans and their repayment track. Care2Earn technology platform and experienced team works hard to provide adequate information about eligibility and different business loans products available.
Select the Best Business Loan product after evaluation: -
Comparing Business Loan interest rates is the primary feature in the Business Loan selection, however other fees & charges like Application fees, processing fees, legal charges should not be neglected when comparing various loan offers. To check the interest rates & other charges incurred by various banks, Care2Earn provides a comprehensive comparison across different banks and assist you in choosing the best Business Loan product suited for you.
Business Loan Application - After you have selected your lender, you have to fill in the application form wherein the lender requires complete information about your financial assets & liabilities; other personal & professional details together with the property details & its costs.
Documentation & Verification Process: - - You are required to submit the necessary documents to the bank which will be verified together with the details in the application. Personal interview /discussions is held with the customers by the bank's officials. Bank's Field Investigation team visits the business place/work place of the applicant. (All the documents submitted are Verified by the bank with the originals so as to ensure the authenticity of the same.)
Credit worthiness & default check of Borrower: - Bank checks out the borrower's loan eligibility (through repayment capacity) & the amount of loan is confirmed. The borrower's repayment capacity is reached which is based on the income, salary, age, experience & nature of business etc. Bank also checks credit history through the CIBIL Score which plays a critical role in deciding & approving your loan application. Low Credit Score implies that the bank upfront rejects your application on the basis of earlier credit defaults; on the other hand high credit score gives a green signal to your application.
Bank sanctions Loan & Offer letter to the borrower: - After the credit appraisal of the borrower bank decides the final amount & sanctions the loan, the bank further sends an offer letter to the borrower which constitutes the details like rate of interest, loan tenure & repayment options etc.
Acceptance Copy to the Bank: - The borrower needs to send an acceptance copy to the bank after the borrower agrees with the terms & conditions in the offer letter
Acceptance Copy to the Bank: - The borrower needs to send an acceptance copy to the bank after the borrower agrees with the terms & conditions in the offer letter.
Signing of agreement & the loan disbursal: You are now ready to sign the business loan agreement. All that's left is for you to submit postdated cheques, and the loan agreement. That's it! Lender will issue a cheque in the your favor . Your EMI commences from the day of disbursement
Generally all banks follow same guidelines for collecting elementary documents. However there may be little variation with subject to specific requirements. Below listed are the documents that is required to process the loan faster. Self Attested copies of Documents are solicited.
The Signed application form duly filled with photograph ID/ Age Proof - PAN Card/ Passport/ Aadhar Card and Residence Proof – Passport/ Utility bills/ Bank Statements. Passport Size Photo Self employed Individual/ Proprietorship Proof of Business- Shop and Establishment Certificate/Vat Registration Certificate/ Service Tax Certificate Last 3 years IT tax returns with profit and loss account and balance sheet duly audited by CA Latest 12 months bank statement- Savings Account and Current Account Existing Loans’ Sanction letters accompanied with repayment track Business profile on the letterhead of the company Partnership Firm/ Partnership LLP Age proof of all the partners in the form of PAN Card, Passport or Adar Card PAN Card of the company Residence proof of all the partners –Utility Bills/ Passport/Bank statement/ Registered rent agreement Proof of Business- Shop and Establishment Certificate/Vat Registration Certificate/ Service Tax Certificate Latest 3 years Income Tax returns with profit and loss and balance sheet duly audited by CA. For company and individual partners. Latest 12 months bank statement of the Company and of the Partners’ Savings Bank Account Partnership deed duly registered. Existing Loans’ Sanction letters accompanied with repayment track Business profile on the letterhead of the company Private Limited / Limited Company Application form duly filled with photographs of directors. Age Proof of Directors- PAN Card, Aadhar Card, passport Residence Proof of Directors- Utility Bills/ Passport/Bank statement/ Registered rent agreement PAN Card of Company Education Qualification- A professional qualification certificate in case of Doctors/CA/Architects Proof of Business- Shop and Establishment Certificate/Vat Registration Certificate/ Service Tax Certificate MOA, AOA, List Of Directors, Share Holding Pattern of the Company Last 3 years IT returns with Profit and Loss account and balance sheet duly audited by CA. For company and individual Directors. Latest 12 months bank statement of Company of all current accounts and the same for Director’s Savings Bank Account Existing Loans’ sanction letter with repayment track of company and Individual Directors Business Profile on the Letter Head of the Company
Eligibility Criteria for Business Loans:
Although it varies from bank to bank, the basic criteria are more or less the same, such as:
People of 25 to 65 years of age only
Business should have been:
Continuing for at least 3 years Profitability in the last 2 years at least Proper Income Tax Return of Minimum Rs 3 Lacs Minimum turnover of Rs.40 Lacs for Proprietorship, Partnership Firm, Pvt. Ltd. Companies, LTD Companies (closely held), Societies, and Trusts is needed. With a Positive Net worth
Business loan eligibility depends upon various factors which differ from bank to bank. The main factor of course, is your ability to repay the loan. Banks that offer business loans will run extensive checks on your business, profits, financial statements and scope of success. For example banks will assess your repayment capacity with the kind of organisation you have built.
For your benefit, we have put down some of the main things to take care of to ensure you are eligible for a business loan. Keep the following points in mind to ensure your application goes through.
Age plays a role in the eligibility and repayment capacity of the individual. Banks generally give out business loans to self employed individuals/business owners that are typically between the ages of 24 to 65 years.
Stable and Sustainable Business
A stable business record goes a long way in improving your eligibility for a business loan. Individuals applying for the loan should have been running their business (the one for which you need a loan) for a minimum of 3 years. Apart from this, you should have been involved in managing stable businesses for a minimum of 5 years to increase your chances of securing a loan.
Current and previous financial statements of your company are used by the bank to evaulate your repayment capacity. These are very crucial. Any kind of financial instability due to mismanagement is frowned upon and can reduce your chances of being eligible for a business loan. Clean and well maintained balance sheets that show financial stability and sensible transactions helps in improving your eligibility for a business loan.
Any pending EMIs at the time of applying for a business loan are likely to reduce your eligibility in terms of maximum amount or even loan disbursal. Since the amount is calculated on basis the EMI, you can possibly repay the contributions towards other outstanding loans to reduce the total business loan amount drastically.
Self Employed Customers
Doctors Entities- Proprietorship Partnerships Limited Liability Partnership Private Limited Company Limited Company
Banks provide loans to business people for their short or long term financial needs. At various stages of running a business, capital is needed either for long term or short term needs. Business loans are provided to all kinds of enterprises like sole proprietorships, partnerships and private limited companies. Though income requirements can vary depending on banks, normally net income of the concern should be more than Rs. 150,000 per annum for business loan up to Rs. 15 lakh and over Rs.3 lakh for business loan above Rs. 15 lakh. A maximum of two incomes of the partners or directors holding a minimum of 25% stake each can be clubbed to the income of the concern. So, before going for a business loan properly review the situation and see how much money you need and at what time. And don't forget to review your financial situation to know how much loan you actually need and how much money you can repay easily.