Business loans are sought by a business to satisfy the working capital, operational, administrative and capex needs. Whether it is new, growing or established, all types of businesses are in search of funds. The funds are required for smooth running of business when you can’t rely on your internal finances all the time. Before you apply for a business loan, let us know more about the various types of business loans, features, eligibility criteria, and more.

Types Of Business Loans And Its Features

Following are the most popular business loans in India.

Type of loan

Feature

Purpose

Interest rate

Repayment

Overdraft

Withdrawal of funds from account even when the balance is Zero. The funds are provided as sanctioned limits.

Secured against investments and other collaterals.

Short term finance for working capital.

12% to 15%

Monthly. Loan tenure is between 6 months and 1 year.

Term loan

Secured or Unsecured

Acquisition of capital assets like plant and machinery

13% to 18%

Monthly or Quarterly.

Loan Tenure:

Unsecured – 1 to 5 years

Secured – 15 to 20 years

Cash Credit

Loan is provided as drawing power or limit based on the stock margin. Hypothecated to stock and debtors

Working capital requirement like purchase of raw materials, paying operational creditors

10% to 14%

12 months. Extended based on the performance of the borrower.

Letter of Credit

Funding guarantee for imports and exports

Dealing with unknown suppliers and customers in an international transaction.

Letter of Credit Charges

 

 

Apart from the above, there are start-up loans, working capital loans, women entrepreneur loans, etc. Each lender will have a customised loan product for the businesses. Loans under government schemes like Mudra loans, PMRY, PMMY, etc are also provided by the public sector and regional rural banks.

Eligibility Criteria For Getting A Business Loan

  • The applicant/owner should be between 21 and 65 years of age.
  • The business should be in existence at least for 2 years.
  • The applicant shall be engaged in the business of manufacturing, trading, or services.
  • Business loans are also available for self-employed professionals like Doctors, Chartered Accountants, and Company Secretaries.
  • The minimum turnover shall vary according to the lender. However, the business shall be earning a minimum of Rs 10 lakhs for getting a business loan.

Factors Affecting The Eligibility For A Business Loan

Credit Score

Credit score plays a pivotal role in determining the creditworthiness of a borrower. It is a complex metric arrived at by considering the number of outstanding liabilities, repayment history, income, etc. The credit score is reported as a number from 300 to 900. If you have a credit score above 750, your profile is considered as good, and likely to get loans when required. Anything below 600 is a bad credit score which is handled with caution and the lender might charge higher interest rates and request collaterals.

Credit Standing

The timely repayment of loans is one of the criteria for determining your credit score. The lender will examine your relationship and standing in dealing with your existing business loans. If your account is regular in paying the interest and principal commitments as and when they are due, the chances of getting a business loan at attractive interest rates are higher.

Business Growth

The lender will be highly interested to understand your business stability in terms of income and liquidity. The business performance in the past 3 years concerning growth in turnover and increase in clientele will be considered while approving a business loan.

What Are The Documents Required For Getting A Business Loan?

The documentary proofs for getting a business loan can vary according to the type of business.

Here is a snapshot of the documents required for getting a business loan.

Particulars

Sole proprietorship

Partnership firm/Limited Liability Partnership (LLP)

Companies

Proof of Identity

Aadhar Card

Driving Licence

Passport

Aadhar Card

PAN Card of authorised signatory

Aadhar Card

PAN Card of authorised signatory

Proof of Address

Aadhar Card

Voter ID

Passport

Electricity bill

Rental agreement

 

Electricity bill

Rental agreement

 

Proof of business

Electricity bill

Rental agreement

PAN Card of the proprietor

Partnership agreement

PAN Card of the firm

Trade licence

Certificate of Incorporation

PAN Card of the company

Trade licence

Authorised signatory

The owner is the authorised signatory.

The firm shall authorise any one of the partners as authorised signatory.

Board resolution authorising any one of the directors as authorised signatory.

Proof of Income

Last 3 years’ Certified Financial Statements

Last 6 months’ Bank Statement

Last 3 years’ Income Tax Return

Last 3 years’ Audited Financial Statements

Last 6 months’ Bank Statement

Last 3 years’ Income Tax Return

Last 3 years’ Audited Financial Statements

Last 6 months’ Bank Statement

Last 3 years’ Income Tax Return

How To Apply For A Business Loan?

  • Choose the type of loan and the lender you wish to apply for.
  • You can visit the official website of the lender and apply online.
  • Select the product you want to apply.
  • Provide basic details like Name, Age, Address, Mobile Number, Constitution of business, etc.
  • Submit the application form. The lender’s authorised representative will keep in touch with you for further processing.
  • You can visit the lender’s branch physically and submit the loan application form with the necessary supporting documents. The loan will be approved on satisfactory perusal of the application and documents.
  • Some lenders offer doorstep banking services where the loan processing is done in the comfort of your home. You can avail of the service to get business loans instantly.

You can also visit Credit Mantri to know about different business loan products available in the market and check your eligibility for a particular loan.

  • Check the various business loans available
  • After choosing the loan you want to apply for, click ‘Check Eligibility.
  • You will be redirected to the application page.
  • Enter the basic details asked and click “submit”. 
  • Enter the OTP sent to your mobile and understand your eligibility.

Conclusion

Business loans can help your business sail through uncertain times. Your credit history, business standing and good relationship with financial institutions can help in getting loans at attractive terms. Work on the long awaited business plans with easy business financing.

FAQ of How Do You Get A Business Loan

1:We are a recently started business. We do not have any collateral to offer. Could we get an unsecured business loan?

Yes. If you have a credit score of 750 and above you can get an unsecured business loan. Many NBFCs offer unsecured loans to self-employed professionals. However, the interest rate will start from 13%.

2:How much is the amount of business loan one can get?

It depends upon one’s credit score and repayment capacity. However, business loans are available from Rs 50,000 to Rs 10 crores depending upon the term of the loan and the size of the business.

3:Are business loans available only in banks?

Public sector, private sector, regional rural, co-operative, small finance banks, Non-Banking Financial Institutions, online lenders, and private lenders provide business loans in India.

4:What is the interest rate payable on a business loan?

The interest rate can vary between 10% and 18% depending on the term and amount of the loan.

5:What are the purposes for which I can avail a business loan?

You can borrow a business loan for

  • Working capital
  • Fixed assets
  • Business Expansion
  • Foreign Trade
  • Operating expenses etc