What is business loan? Know Interest Rates and Eligibility, Apply for loan

What is business loan, Know Interest Rates and Eligibility : Banks and NBFCs provide business loans to individuals for starting, expanding, and fulfilling other business needs. Business loans come in two types: secured and unsecured loans. For secured loans, applicants are required to pledge some form of security or collateral with the bank. However, in the case of unsecured loans, there is no requirement for the applicant to provide any security or collateral to the bank. To understand how to get a business loan and the conditions that need to be fulfilled, read this article.

Most banks/NBFCs offer both secured and unsecured types of business loans, including letter of credit, bill discounting, equipment finance, POS loan, term loan, working capital loan, loans under government schemes, overdraft, etc.

What is business loan ?

The minimum loan amount offered under business loans starts from Rs. 10,000 and can be obtained from Small Finance Banks (SFBs), Regional Rural Banks (RRBs), or Microfinance Institutions (MFIs). Borrowers can also avail collateral-free business loans up to Rs. 2 crores from leading private and public sector banks and NBFCs.

Business Loan Interest rates of main Banks and NBFCs

Business loan interest rates start from 9.00% per annum and are determined based on the applicant’s credit profile.

Importance of CIBIL score for taking business loan

The approval of a business loan also relies significantly on the applicant’s credit score. This score reflects the individual’s credit record and how they have managed their loans and credit cards thus far. Typically, banks consider a CIBIL score of 750 or above as good. Even if your CIBIL score is 650 or lower, there are still chances of obtaining a loan from NBFCs, small finance banks, and microfinance institutions.

The ideal CIBIL score required for taking a business loan may vary for self-employed professionals, MSMEs, retailers, contractors, etc. Banks/NBFCs set different CIBIL score thresholds based on the type of business loan, such as term loans, working capital loans, letter of credit, overdraft, POS loans, etc., and the profile of the applicant.

Those who are new to credit, meaning those who do not have a CIBIL score, should start building their credit score to increase the likelihood of loan approval. Applicants with low CIBIL scores are more likely to have their loan applications rejected. For start-ups, a higher CIBIL score is usually required for obtaining a business loan since there is higher risk involved in lending to them.

Business Loan Eligibility Conditions

  • The business should be operational for at least 1 year or more.
  • The current business should have a minimum annual turnover of 12 lakh rupees.
  • The applicant should have a CIBIL score of 750 or above.
  • There should be no record of default on previous loans by the applicant.

Eligible applicants who can apply for the loan

  • Individuals, self-employed professionals, startups, and small and medium enterprises (MSMEs).
  • Private and public limited companies, partnership firms, limited liability partnerships, and large companies in manufacturing, trade, or service sectors.
  • NGOs, cooperative societies, trusts, chartered accountants, doctors, architects, company secretaries, designers, etc.

Documents required for business loan

When applying for a business loan, you may need to submit the following documents:

  • KYC documents of the applicant, including PAN card, passport, Aadhaar card, driving license, voter ID card, and utility bills (electricity/water bills).
  • Bank statements for the past 1 year.
  • Copy of non-collateral overdraft, if applicable.
  • Copy of business incorporation.
  • Any other documents required by the bank/loan institution.

Business Loan Fees

The fees and charges for business loans can vary from one bank to another. These fees and charges depend on factors such as the loan amount, interest rate, and repayment period.

Special Loan Schemes for Women

To empower women entrepreneurs, banks have started offering special loan schemes for them. These loan schemes provide women with relaxed interest rates and security/guarantee requirements. Some banks even have special departments dedicated to women entrepreneurs where they are informed about loan schemes, provided business-related advice, and offered training. Women entrepreneurs whose ownership stake in the business is less than 50% may not be eligible for these special loan schemes. Some popular loan schemes for women entrepreneurs include:

  • Mahila Udyam Nidhi Yojana
  • Mahila Samriddhi Yojana
  • Central Bank of India’s Cent Kalyani scheme
  • State Bank of India’s Shringar and Annapurna schemes
  • State Bank of India’s Stree Shakti Package
  • Bank of Baroda’s Shakti Scheme

Loan schemes offered by the Government of India

Here are the mentioned loan schemes :

  • Mudra Loan Scheme
  • PMRY: Prime Minister’s Employment Generation Programme
  • PMEGP: Prime Minister’s Employment Generation Programme
  • CGTMSE: Credit Guarantee Fund Trust for Micro and Small Enterprises
  • Stand-Up India
  • Start-Up India
  • Credit Guarantee Scheme
  • CLCSS: Credit Linked Capital Subsidy Scheme
  • National Small Industries Corporation Subsidy

Types of Business Loan

  • Term loan
  • Working Capital loan
  • Point of Sale (POS) Loan
  • Letter of credit
  • Overdraft loan

FAQs

  1. What should be the Repayment Tenure of business loan?

    Answer: If you are taking a short term loan then the repayment period should not exceed 12 months. Whereas if you are taking a big loan then you can choose a repayment period of up to 5 years.

  2. What is your refund policy?

    Companies often specify a timeframe during which refunds are accepted, such as within 30 days of purchase.

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