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What is a Business Loan?
A business loan is a financial product provided by banks and financial institutions to entrepreneurs, startups, or established businesses to fund their business operations, expansion, or other needs. These loans can be secured (backed by collateral) or unsecured (no collateral) and are repayable in fixed installments over a predetermined period.
Key Features of Business Loans
Loan Amount: Borrowers can avail amounts ranging from ?50,000 to several crores, depending on business requirements and eligibility.
Flexible Tenure: Loan repayment periods range from 12 months to 5 years or more.
Interest Rates: Offered as fixed or floating rates, typically higher for unsecured loans. Rates vary based on the borrower’s credit profile and financials.
Collateral Requirement: Both secured (against property or other assets) and unsecured options are available.
Purpose: Can be used for working capital, inventory purchase, equipment financing, business expansion, or debt consolidation.
Prepayment Options: Allows for prepayment to save on interest, though some lenders may charge a prepayment penalty.
Quick Disbursal: Many lenders offer fast approvals and disbursal, especially for pre-approved borrowers or MSMEs.
Benefits of Business Loans
Business Growth: Helps finance expansions, new projects, or market diversification.
Working Capital Management: Provides liquidity to manage day-to-day operations, especially during cash flow crunches.
Unsecured Options: Entrepreneurs can access funds without pledging assets in many cases.
Customizable Loan Structure: Tailored to suit the business type, repayment capacity, and cash flow.
Tax Benefits: Interest paid on a business loan can be claimed as a deductible expense under the Income Tax Act.
Creditworthiness: Regular repayments improve the business's credit score, making it eligible for higher funding in the future.
Technology and Equipment Upgrades: Funds can be used to adopt advanced technology, purchase new machinery, or update infrastructure.
Eligibility Criteria for Business Loans
Eligibility varies among lenders but generally includes the following:
For Businesses
Age of the Applicant: Typically 21–65 years at the time of loan maturity.
Business Vintage: The business should be operational for at least 2–3 years. Startups may need additional documents.
Annual Turnover: Minimum turnover requirement (varies by lender; usually ?10 lakhs or more).
Profitability: Businesses need to show stable and consistent profits.
Credit Score: A good personal and business credit score (750+ is preferred).
Type of Business: Proprietorships, partnerships, LLPs, private limited companies, and public companies are eligible.
Repayment Capacity: Determined by cash flow, business financials, and existing liabilities.
Documents Required for Business Loans
Here is a checklist of common documents required for a business loan application:
1. Identity and Address Proof (of applicant and business)
PAN Card (individual and business)
Aadhaar Card
Passport
Driving License
Utility Bills or Trade License
2. Business Proof
Certificate of Incorporation/Registration (for companies or LLPs)
GST Registration Certificate
Partnership Deed (for partnerships)
Udyam Certificate (for MSMEs)
3. Financial Documents
Bank Statements (last 6–12 months)
Profit & Loss Statement (last 2–3 years)
Balance Sheet (last 2–3 years)
Income Tax Returns (for business and individual, last 2–3 years)
4. Other Supporting Documents
Loan Application Form (duly filled)
Proof of business ownership (rent/lease agreements, property deeds)
Collateral documents (if secured loan)
Project Report or Business Plan (especially for startups or expansion loans)
RATE OF INTEREST AND TENURE: 3% AN D 1 TO 20 YEARS