A business loan is a loan specifically intended for business purposes. As with all loans, it involves the creation of a debt, which will be repaid with added interest.
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Types of Business Loans
Secured Loans for Businesses
These loans are those which are taken against some type of personal guarantee or any valuable asset as collateral. Inventory loans, equipment loans, term loans and loan against property are secured business loans.
Unsecured Loans For Businesses
In many situations, businessmen and self employed prefer to take unsecured business finance with no collateral requirement because of the following reasons:
- Short turnaround time of 5 -15 days as compared to secured loans
- No collateral or security required to get this loan
- Reduces your dependence on friends, relatives or money lenders for borrowing for urgent or seasonal business expenses
How to get a business loan?
You can choose to apply for a business loan through the traditional channel of visiting a bank branch or through a DSA. However, if you are looking for quick business loans without collateral, you can simply apply online at MyLoanCare. You can compare loan interest rates online and also use online Eligibility Calculator to get a rough estimate of your business loan eligibility. Once you fill your basic personal, business and income details, you will get a list of best bank business loan offers. Once we receive your details and also the bank offers you are interested in, we will work closely with our partner banks to ensure that you get best business loans at cheapest rates. MyLoanCare representatives will coordinate with you and partner banks throughout the loan process to ensure that you get quick and easy approval with minimal paperwork.
Business Loan Eligibility
Banks use multiple factors to calculate the loan amount elibility of its borrowers. Business Loan Eligibility Calculator uses the following factors to give you an estimate about your loan eligibility, amount of loan and best interest rate offer.
Business Loan Eligibility Calculator
| Parameters | Business Loan Eligibility Criteria |
|---|---|
| Eligible Entities | Self employed non professionals – Sole proprietors, partnership firms, private limited companies, public limited companies involved in the business of manufacturing, trading and services Self employed professionals – Doctors, CA, CS, Architects. |
| Age | 21 - 65 years |
| Loan Amount | Rs. 50,000 to Rs. 100 Cr |
| Interest Rate | 13.50% - 20.00% |
| Loan Tenure | Up to 5 years |
| Business Vintage | For self employed professional - 3 years For self employed businessmen - 5 years |
| Annual Turnover | Rs. 1 Cr and above |
| Banking Stability | 6 months and above |
| CIBIL Score | 650 or above |
| Other Eligibility Conditions | Borrower should have a self owned house or work place |
Factors that determine eligibility for Business loan are
- Eligible Age – Banks consider borrowers with age of 21 years to 65 years
- Loan Amount – Loan amount of Rs. 50,000 to Rs. 100 Cr can be availed on business loan. Higher the loan amount, higher the chances to get low interest rate.
- Loan Tenure – Business loans are unsecured loans and are given for a shorter period. Generally, these loans are given for a tenure of 1 year to 5 years.
- Income Tax Returns (ITR) – A self employed can get a business loan, only when it has filed regular ITRs for the past few years. Banks consider borrowers who have filed ITRs of 2 years or more as eligible to get a business loan. Banks evaluate your monthly income and repayment capacity based on details submitted in the ITRs.
- Revenue / Turnover - Revenue is the income that a business enterprise has earned from the sale of goods and services to customers. It is also termed as sales or turnover. In case of doctors, this sales or revenues is measured in terms of Gross Annual Receipts. Most banks and NBFCs ask for a minimum annual turnover of Rs. 1 Cr to be eligible for business loans without collateral. However, there are a few NBFCs and banks which lend to businesses or self employed with turnover of less than Rs. 10 lakh as well.
- Business Vintage and Growth – Business vintage and growth is an important factor consider by banks and NBFCs to take a decision to give you loan. It gives the bank or NBFC an assurance that your business is authentic, stable and can generate profits to repay their loans. Banks typically look for a business stability or profitability of minimum 3 years for self employed professionals. In case of other businessmen, banks and finance companies require a minimum business continuity or existence of 5 years Banks and NBFCs also specify the minimum growth rate of 10-15% in sales or turnover for the last 3 years to be eligible for a business loan. Further, your business or enterprise should be profitable in the last 3 years.
- Banking Stability – Banks and NBFCs a check bank statements of minimum 6 months of your operational banking accounts to approve your loan. Banks will evaluate your banking stability and repayment capacity based on your average account balance. Banks will also consider your outbound and inbound cheque bounce information to take a view on your credit track record.
How to improve chances of getting a Business Loan ?
In case of unsecured loans, each has its own set of policies. If the borrower does not fulfil the bank's eligibility criteria, the bank rejects his/her loan application. So, here are few tips which will help you to improve your chances of getting your loan application improved.
Improve Credit Score – First of all, identify the factors that have resulted in a low credit score. Credit score can be adversely affected due to late payment of credit card or default in outstanding loan EMI payments. Defaulting and late payments, both result in bad credit score. It is extremely important to maintain healthy credit repayment track record and make all your payments on time. Always ensure that you have adequate balance in your bank account to make ECS transactions.
Avoid multiple loan applications - Sometimes, you apply for business loan with multiple banks in order to improve your chance of getting loan on time. However, applying for loan at multiple banks at the same time increases the chances of the loan being rejected as each query gets captured in your credit report. Customers are also unaware that any loan that is rejected by a bank, has a less chance of getting an approval at other banks as well. Banks tend to become more cautious in lending to customers who have been rejected by other banks.
Choose your Bank wisely – Research the banks which are offering best business loan interest rates. Opt for a bank which offers fast service with low interest rates. You must also calculate your loan eligibility using Eligibility Calculator to get an estimate of your loan eligibility and your ability to service loan repayments from your monthly cash flows. You can apply for a quick business loan through to get best deals on rates and processing fee from top banks in India
Business Existence – Generally, banks give loan to businesses with minimum business existence of 3 years. For new businesses, start-ups and loss making businesses, chances of getting an unsecured business loan is low. In this case, you should explore options of secured business loans.
Apply for a loan amount based on your repayment capacity – Determine the loan amount that you can easily repay in future. If you apply for a loan amount which is higher than your eligibility, it can create doubt in the mind of lender and lead to rejection of your loan application. So, make sure you choose the correct loan amount that you can comfortably service.
Maintain proper accounts and financial information- As a business entity, it is extremely critical that you have your GST registration in place. Also, it is advisable to keep audited record of your financial statements, as the same are an important set of documents referred to by the bank at the time of calculating your eligibility.
Regularly check your CIBIL Score: As a business entity which can need to borrow frequently from banks, it is advisable to access your credit score report on a regular basis and do regular timely corrections in your report.
Compare Business Loan Rates and other charges
- Business Loan Rates - Interest rate on business loan depends upon your business, the loan amount you have applied for and your past relationship with the bank. Current rate of interest on business loan starts at 13.50%.
- Processing fees – Most banks charges minimum processing fees of 2% to 3% on loans.
- Insurance premium - Since these loans are unsecured loans, it is advisable to take an insurance policy like life and accidental insurance by the name of the borrower when availing a loan. Most banks give insurance coverage to the owner of the company to protect the financial risks in case of any emergencies. However, the premium varies from bank to bank depending upon the risk coverage under various policies and loan amount borrowed by the applicant. So, check the loan terms of the bank carefully to know the coverage and premium. And, consider other banks and insurance companies also who offer better insurance plan for the same amount.
- Prepayment and foreclosure – Nobody wants to keep paying interest on a loan when you have surplus money available to repay it. When you want to repay your loan partially before time, its called part prepayment. In case you decide to pay the entire loan amount before time, it is called foreclosure. Banks typically levy prepayment or foreclosure charges in such situations and these can be upto 5%. So, check carefully if the low rate of interest you are getting comes with high prepayment or foreclosure charges. Note that some business loans cannot be repaid before time.
Documents required for Business Loan
- Signed Application Form
- Identity Proof (PAN)
- Residential Address Proof
- Last 3 years ITR (self and business), profit and loss account, balance sheets certified/audited by a CA.
- Last 12 months bank account statement (self and business)
- Certificate and Proof of Business Existence
- Business Profile
- Office address - ownership/ lease / rent agreement/ utility bill
| Individuals | Firms, Partnerships | |
|---|---|---|
| Identity Proof | PAN card, Passport, Driving License, Aadhar Card, Voter id, Govt issued i-card | |
| Certificate and Proof of Business Existence | PAN , sales tax/ excise/ VAT/ service tax registration, Copy of partnership deed, Trade license, certificate of practice, registration certificate issued by RBI, SEBI | |
| Address Proof | Passport, Driving License, Election ID card, Electricity/ Telephone/ Mobile bill/ bank statement (not more than 3 months old) | Bank statement, utility bill, Registry copy, lease or rent agreement, TAN allotment letter |
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