Business Loans in Chennai

Business Loans in Chennai

Rated as the safest city in India, Chennai is the capital of the state Tamil Nadu. Chennai has a broad industrial base in the automobile, computer, technology, hardware manufacturing and healthcare sectors.

The city has a long history with banking right from the colonial times and today numerous prominent commercial and banking establishments have the city as their first home, the city also serves as a captive centre of operations for several global banks and financial corporations.

Chennai is home to some of the leading banks and other NBFCs in India. Are you looking for a business loan in Chennai and wondering what your options are? You have reached the right place. Read on!

What is a Business Loan?

Any person wanting to start a business or any individual wanting to expand their business need funds to do so. This is where individuals and entrepreneurs take loans at a previously agreed rate of interest and time. Without this working, capital businesses cannot run smoothly. There are 2 types of business loans

Secured loans – This is the case where individuals and entrepreneurs provide collateral like inventory, land, machinery etc for which the interest rate will be less

Unsecured loans – This is the case where businesses take a loan without any collateral. The interest rates are high as the risk for the banks are high

Purpose of Business Loans

The most common reasons to take business loans are as follows

Expanding Operations

Buying land or leasing a property to expand business operations when you feel that your business has grown large enough and scaling up at this moment is an opportunity that you do not wish to forgo, a business based on its growth projections can go for expanding operations more than once.

Purchase Equipment

Technology has become a key driver in the information age of business, and since technology comes with a pre-set expiry date, there is always a demand to purchase or upgrade existing equipment and technology. Loans can be used for buying/leasing/replacing new equipment that will help improve the production or operations of the organization, alternatively the equipment can also be leased, it is best to conduct a cost-profit analysis to determine whether to buy or lease. The advantage with buying equipment is that depreciation can be claimed each year apart from the first-year tax exemptions.

Purchase of inventory

Most often small business would require immediate capital for the purchase of inventory stock or raw material. There may arise the situation where the demand for your product may be very high in the market. Businesses may not have the funds to get the raw materials to meet the rise in demand. This problem can be solved when individuals and entrepreneurs take loans to buy the inventory needed for production.

To increase working capital

Many times, small businesses may not have enough working capitals to run their day to day activities. They will take short term loans till their own assets earn enough revenues to meet their operational needs.

Improve credit history

If a business is looking to get a larger loan it is necessary for the company to have a good credit history. To make sure of this the individual or proprietors get short term loans and pay them on time to improve their credit history. Consistent repayment of borrowings will lead to a positive credit history.

Business Loans in Chennai

It is always best to get a loan to improve your credit worthiness and the extra cash can be used in your working capital.

As in the case of any loan, banks will assess the financial statements and business records to determine company’s credit worthiness i.e. their repayment capacity and reliability. Based on this the loan amount, tenure and rate of interest are determined for any type of loan category - Term Loans, Overdrafts, Bill Discounting and Letter of Credit.

Since business loans are given to individuals running their own business, the loan dispersal will depend on the credit score of the individuals. Most Lenders consider the credit score as the core of the lending process as it gives a sense of how credit worthy the applicant is. Hence it is stressed that aspiring business owners and those out there looking for a loan to improve their business should first check their credit score to get a sense of their credit worthiness.

Best Lender for Business Loans

Business loans are provided by almost all major banks and NBFC’s present in the city of Chennai. Entrepreneurial citizens can look for the best lenders which include Citi bank, HDFC, Axis bank and Shriram Finance. In general interest rates vary between 12% - 24% per annum. The tenure varies between 1 – 5 years for short term loans while it is a maximum of 15 years. The processing fee lies between 1% - 3% on which GST will be levied.

The loan amount commonly disbursed by lenders start from an amount of 50,000 INR to up to 1 Crore INR

Business Loan Eligibility

The business loan can be offered to any person who is running a legitimate business and has good turnover. Different banks have different criteria and terms to validate and authenticate a person’s business. After all the evaluation the loan amount, tenure and rate of interest or even whether to provide loan falls under the purview and authority of the bank. Some of the parameters taken under consideration are

• Type of business: Proprietorship, Partnership, Private Limited or Public Limited
• Turnover of the business
• Profit made by the business
• Cash flow of the business
• Track record of business

Comparing the loans

The best loan for any business depends on

• The requirement of the business
• Strategic or Tactical business needs and decisions
• The loan amounts
• The interest rates
• Processing fee
• Prepayment charges

If you are looking pay the loan using the full tenure, then choose the loan with lowest processing fee and interest.

If you are planning to repay the loan before the end of the tenure then compare based on prepayment charges.

Special schemes for Woman Entrepreneurs

To encourage the number of women entrepreneurs and bring out the best from Women Self Help Groups, some special schemes for woman entrepreneurs. This has led to nearly double the number of women-owned businesses in last decade. Some of the schemes are

• Annapurna Scheme
• Stree Shakthi Package
• Bharatiya Mahila Bank which has now been absorbed into the country’s largest bank The State Bank of India
• Dena Shakti Scheme - Dena Bank- financing for women entrepreneurs in Agriculture, Small Enterprises, Micro and Small Enterprises
• Udyogini Scheme - Punjab and Sind Bank
• Cent Kalyani Scheme - Central Bank of India
• Mahila Udyam Nidhi Scheme - Punjab National Bank- loans and assistance to women to set up small scale industries

Documents Required for Business Loans in Chennai

The document requirements for KYC is dependent on the lender (bank or NBFCs) but we have collated a broad list of documents for your convenience

• ID Proof
• Address Proof
• Proof of Continuity of Business
• Bank statements of last six months.
• Board Resolution
• ITR & Statement of Computation of Income – for last 2 Years
• CA Certified or Audited profit and loss account statement and for greater than 40 Lakhs cases audit report along with schedules of profit and loss sheet and balance sheet for last 2 years
• Latest ITR of Co-Applicants – For last 2 Years
• Ownership Proof of Residence or Office

Business Loan Defaulting

Many banks have their own criteria for loan defaulting. Apart from your credit score getting a huge hit, there are 2 scenarios which can occur

Secured loan

In the case of secured loan, the bank will seize the collateral as compensation after enough warnings have been given to the defaulter. The timeframe between warnings and seizure of collateral varies from bank to bank.

Unsecured loan

In the case of unsecured loan, the bank will increase the rate of interest and or levy a penalty till the dues are paid. If the repayment stops completely for some time, then the bank will transfer the issue to a collection agency. If the issue is not solved by the collection agency then the lender may take the legal course of action.

One other point to note while taking a loan for your business is to think about your co-borrower and their credit status, do look for an able co-borrower with a good credit history.

How to Apply for Business Loan in Chennai

You can check your eligibility and apply for a Business Loan by signing up with CreditMantri and checking your credit score. It is quick, simple and above all, free.

Checking your credit score and obtaining your credit report is the first step towards good credit health. Looking at your credit report at a glance gives you a sense of your credit history which includes your current and previous credit accounts. This will include your loan and credit card accounts. If there are any negative accounts due to incorrect information or pending dues, you must take steps to correct them. This can be done by availing a credit improvement service. Your credit score is maintained by credit bureaus and are updated by banks and lenders based on your transactions of credit be it either loans or credit cards

For first time entrepreneurs or individuals with start-up ideas looking to gain capital through formal route of funding viz. banks and NBFCs, it is even more important to build a good credit score using score building products exclusively created for those without a credit history.

A few words about CreditMantri

CreditMantri matches your credit and demographic profile to the lender's lending criteria and presents you a shortlist of only those lenders willing to lend to you based on your unique credit profile. In effect, we pre-screen your application to make sure you are likely to qualify as per the lender’s credit criteria. Hence, the chance of approval on your loan application is higher.

Click here to sign up and apply for loans and business-loan , the CreditMantri way!