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Learn More About Business Loans
The various types of Business Loans are as follows:
Working Capital Finance: Any businessman who is in the service/manufacturing business or retail/wholesale trading, imports/exports can make use of this facility. This facility is generally opted for when there is a liquidity crunch in the business due to irregular cash flow and funds are required for meeting the day-to-day operational expenses of the business or when there is a sudden increase in the volume of the business. Working Capital finance can be by way of a line of credit, overdraft, packing credit, post-shipment credit or even by way of non-fund based limits like Bank Guarantees and Letter of Credit.
This facility will be a revolving credit and can be used as and when required. The utilised amount can be replenished by depositing the amount when the cash flow of the business improves. The biggest advantage in this type of finance is that interest is levied only to the extent of the amount utilised and for the period utilised.
Rate of interest is mainly based on the credit appraisal of the business. The working capital finance will be for a period of 6 to 12 months and will be renewed after an annual review. The prime security for working capital finance will be the stocks and receivables of the firm/Company. Collateral security may also be insisted by way of a mortgage of residential/commercial property. It depends on the lender and the quantum of finance.
The following are the common eligibility criteria for a Business Loan:
1. The applicant or the promoters of the business should be in the age group between 21 years to 65 years.
2. Proprietorship/ partnership firms and Pvt Ltd companies, self-employed individuals/ professionals engaged either in manufacturing, services or trading.
3. A business vintage of a minimum of 3 years.
4. A minimum business turnover and a minimum annual turnover as per the ITR will be required. The quantum of the requirement will vary from lender to lender.
5. The firm/company should be profit-making for at least a period of 1 year.
The following are the common documents required for a Business Loan:
Proof of address of the promoters: Aadhaar Card, Voter's ID Card, Driving Licence, Utility Bills, etc.
Photo ID proof of the promoters: PAN Card, Passport, Voter's ID Card, Driving Licence, etc.
Proof of business: GST Registration, Trade Licence, Registration under Shop Act, Drug Licence, etc.
Income proof: Balance Sheet and Profit & Loss Account audited by an Auditor with Auditor's report.
Business loans involve various types of charges, like documentation charges, cheque dishonour charges, repayment mode swap charges, charges for duplicate NOC, cancellation charges, and so on. Following are three main charges types that are common for each lender:
Processing charges: Up to 3.5% of the loan amount + GST.
Foreclosure charges: Up to 6% of the outstanding loan amount.
Delayed payment penalty: 2% onwards over & above the normal rate of interest on the overdue amount for the overdue period.
Prepare a business charter containing the details of your business plans for the next few years.
Be aware of the credit score of the promoters as well as the company before approaching the lender.
Decide the quantum as knowing the right quantum of loan is also a mandatory requirement.
Do a bit of market research to understand the various options available for Business Loans in the market.
Shortlist the options that suit your requirement and also check for the interest rates and other associated charges for the loan.
Look for the lender which does not have elaborate approval procedures.
Be aware of the documents required and keep them ready before applying for the Business Loan.
It is important to be aware of the credit score of the promoters as well as the company before approaching the lender. Credit scores indicate your repayment history. If both the company and the promoters have a good credit history, it will be that much easier to get approval for a business loan.
Need assistance?
Our customer care team is available from Mon - Sat 9:30 am – 6:30 pm to assist you with the best offers, or help resolve any queries. You can call us on: +91 9395-901-739 (toll-free)
