A Business Loan is a long-term commitment. Whether you are looking to expand your existing business or upgrade existing infrastructure, understanding the different aspects of a Business Loan is essential. This will help you customise your loan in the best possible manner to extract maximum benefits. So, go through this blog to learn what a Business Loan is, its features, benefits and more.
What is a Business Loan? Meaning & Definition
A Business Loan is a type of financing that is specifically designed to help businesses cover their expenses. It is a loan that is taken out by a business to fund its operations, purchase equipment, hire new staff, or expand its operations.
It's important for businesses to carefully consider which type of loan and interest rate structure is best suited for their needs as different lenders provide different terms. Overall, Business Loans can be a valuable tool for enterprises that are looking to boost their growth and operations over time. However, it's important to carefully consider the terms and conditions of any loan before signing on the dotted line.
Types of Business Loans in India
The following are the different types of Business Loans available in India:
1. Term Loans
These loans come with a fixed interest rate and repayment period. You can use it for different business purposes like buying assets or expanding business operations.
2. Cash Credit
It is a short-term loan providing funds based on a credit limit assigned by the lender. It is helpful for daily business operations.
3. Overdraft
It allows businesses to withdraw funds exceeding their account balance, with interest charged only on the amount used.
4. Loan Against Commercial Property
This type of loan is secured by pledging property as collateral, offering lower interest rates and substantial funds for covering large-scale business needs.
5. Unsecured Business Loan
An unsecured Business Loan is granted based on creditworthiness without collateral, suitable for businesses seeking quick funding.
Why Do You Need a Business Loan?
A Business Loan can help in purchasing business equipment, developing your infrastructure or operations, hiring additional people, or managing day-to-day cash flow. These loans can help you keep your company running smoothly while also taking advantage of market opportunities. India's small and medium businesses continue to rely on the banking sector.
Benefits of Business Loan
Here is a list of benefits you can gain with a Business Loan:
- Boost Working Capital: A Business Loan provides working capital for covering day-to-day expenses, seizing opportunities, and managing cash flow.
- Expand Business Operations: It enables businesses to expand operations, open branches, diversify product lines, or enter new markets for increased revenue.
- Ensures Business Continuity: Provides a safety net during economic downturns, covering operational costs and ensuring business continuity.
- Enjoy Tax Benefits: Interest paid on Business Loans is often tax-deductible, reducing the overall tax burden for the business.
MSME Loans
The constant search for sources of working capital is one of the most worrying areas for an entrepreneur's growth. Finding means to raise finance for a small or medium-sized business (MSME) with few assets or collateral can be challenging.
MSME Loans, also known as Micro, Small, and Medium Enterprise Loans, are loans you can get if you run a company or are an entrepreneur. This form of loan gives you working capital that you can use to buy new goods, acquire new equipment, pay your employees' salaries, or expand your business. MSME loans are available from a variety of lenders in India. Interest rates vary from lender to lender.
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Micro
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Small
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Medium
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Investment is limited to Rs. 1 Crore, while revenue is limited to Rs. 5 Crore.
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Investment is limited to Rs. 10 Crore, while revenue is limited to Rs. 50 Crore.
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Investment is limited to Rs. 20 Crore, while revenue is limited to Rs. 100 Crore.
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How to Get a Business Loan?
To apply for a Business Loan, you need to visit the website of your chosen lender and follow the steps mentioned below:
- Step 1: Click on the ‘Apply Now’ button and register for an account with your basic details.
- Step 2: Fill in the application form with your financial information and requirements.
- Step 3: Upload the required documents and click on the ‘Submit’ button.
- The representatives will get in touch with you to take the process forward.
Eligibility Criteria for a Business Loan in India
Here are the eligibility criteria for Business Loan in India:
- Age: Applicants must be between 24 and 65 years old.
- Business Vintage: Businesses must have been operating for at least 2 years.
- Annual Turnover: The applicant's business must generate a minimum annual turnover of Rs. 6 Lakh.
Documents Required for Business Loan in India
Following are the documents you have to submit to avail Business Loans in India:
- KYC Documents: PAN card, driving licence, Aadhaar card, Voter ID card, etc.
- Business Documents: Business registration proof and business address proof (utility bills or rent agreement).
- Financial Documents: Bank account statement from the past 6 months.
How Can You Ensure That Your Loan Is Approved?
To be eligible for a Business Loan, you must be able to demonstrate your ability to repay the loan. In addition to this, you need to be fully informed about what is a Business Loan in India. Here are a few suggestions for how to get it right:
- Maintain a Good Credit Rating
A credit score is an indicator of creditworthiness. A high credit score indicates that you are financially responsible and unlikely to default on your payments. It also demonstrates your ability to make wise financial decisions. A credit score of 700 or more will boost your creditworthiness and leas to faster loan approvals..
- Show a Healthy Cash Flow in The Company
The lender will assess your company's cash flow projections. Previous tax returns and other financial documents will also be analysed before the loan is approved by them. So, ensure there is sufficient cash flow within the company.
- Keep Your Loan Application Documents Ready
Ensure that you compile all required paperwork to simplify the loan application process and make things easier for you and the lender. Some of the required verification documents include:
- Proof of Identity & Address
- Proof of Business
- Business and Personal Tax Return Records
- Business Financial Statements
- Legal Documents
Also Read: Debt Vs Equity Financing: Which is Best for Small Business?
Do’s and Don’ts When Applying for an MSME Loan Online
Here are some things to take care of when applying for an MSME Loan:
Do’s
- Calculate your loan requirements
- Check your credit score
- Collect all required documents in digital format
- Keep a loan repayment strategy ready
Don’ts
- Do not apply with multiple lenders, as it will reduce your credit score by a few points.
- Do not delay your repayments for existing debts, as it will impact your credit score and financial goodwill.
Also Read: 5 Easy Ways To Fast Pay Off Your Business Loan Efficiently
To Conclude
Now that you have learned what a Business Loan is and its various types, you can make informed decisions about financing your business ventures. You can apply for this type of loan via Poonawalla Fincorp to fuel the growth of your business and achieve your entrepreneurial goals.
Frequently Asked Questions
- What should I consider before applying for a Business Loan?
Before applying for a Business Loan, it is essential to calculate your EMI using the EMI calculator. It provides valuable insights for your loan planning.
- What is the Business Loan tenure of Poonawalla Fincorp?
The Business Loan tenure of Poonawalla Fincorp is 6 months to 48 months.
- Do taxes apply to the charges of the Business Loan?
Yes, you will have to pay taxes on the processing fee, prepayments, and penalties for defaulting on EMIs of Business Loans.