What is a business loan? How to apply for a business loan?

The business sector is one of the leading determinants of the global economy. The well-being of the global mass mainly depends on this sector too. Businesses come into this sector for selling different kinds of commodities or services.

Every business depends on capital. However, such capital is often sourced from business loans from several financing institutions or banks. Moreover, even the Government of some countries sanctions start-up loans to help the economy and self-reliance.

As per the study from Trading Economics, the loan value in India has grown by 5.10% each year until September 2020.

Business Loan: An Overview

People who are already into business or planning to start one can seek business loans. In India, you can get up to Rs. 25 crores as the business loan capital from any leading bank depending on your eligibility.

In general, a person with no prior experience in entrepreneurship gets low capital business loans for starting up a business. The lenders sanction a higher amount only if the borrower is attached to a company with decent monetary history.

Business Loans: Characteristics

Here are the basic characteristics of a business loan. As a borrower, you must have a clear idea of these features of a business loan:

High capital amount

Business loans have high capital amounts. It is quite hefty compared to the personal loan capitals.

Type of loan

A business loan falls under the unsecured type as the lender can get the capital without keeping anything as the collateral.

Rate of interest

Being of unsecured type, the rate of interest is always high for a business loan. However, it remains fixed for the entire tenure. A borrower must always negotiate the rate before the sanction.

Capital amount and tenure

The business capital ranges between Rs. 50 Lakhs to Rs. 2 crores. Financial organisations providing business loans generally check the borrower’s credit history, financial status, and business turnover.

A borrower can choose a specific repayment tenure for business loans according to convenience. You should always keep the capital amount and total monthly savings in your mind.

Instant processing

Business loans need only a few paperwork, and the borrower gets the money transferred into his/her bank account instantly.

How to apply for a Business Loan?

The basic process of a business loan application remains the same apart from some variations. Here, the overall procedure is given in detail.

Step-1: Application Procedure

The initial step of people looking for business loans has to go through is the application procedure. You can either apply online or visit a bank or NBFC. Getting a business loan application form is crucial. Try downloading it or get a hard copy.

Fill the application form with the utmost care. You should avoid making any mistakes when entering the data and mention the amount, interest rate, and tenure of the loan. The application procedure ends once you submit the application form with all the required information.

Step-2: Submit the documents

Document submission is the extension of the application procedure. Here, the borrower has to submit all the documents demanded by the loan-providing organisation.

These documents act as proof for all the entries on the application form, and it is taken for verification purposes. In the case of the online application, you need to upload the clear scanned copies of your documents. Otherwise, submit the photocopies to the organisation.

Step-3: Loan Sanctioning

It is fully the concern of the bank or NBFC whether it sanctions a person’s business loan. If you apply for it, make sure to wait for a few days until your loan gets approved.

You can get the business loan capital within three to five days of sanction. The tenure of your business loan starts from the day the money is transferred to your account.

What is the Eligibility to get a Business Loan?

The knowledge of business loan eligibility criteria is vital for any entrepreneur. Here are the details:

1. Business experience

All loan-providing organisations expect a good business experience from the borrower. It can vary from 6 months to 3 years, depending on the norms and capital amount.

2. Age of the applicant

The applicant’s age is one of the major criteria that all business loan providers follow. If you are planning to apply for a business loan, make sure your age is between 25 to 65.

3. Financial Status

A business loan applicant must have a decent financial history on both personal and organisational aspects. Excellent credit score, clean financial history, and decent business profits in the past can lead an entrepreneur to get a business loan early.

Documents Required for a Business Loan

The primary documents one must have to apply for a business loan are mentioned here.

1. Proof of business registration

Any NBFC or a Bank requires the proof of business registration to verify if the organisation is present.

2. Aadhar Card

The proprietor’s Aadhar Card is a crucial document that is needed during the application of a business loan. It provides a foundation regarding his/her identity and shows other vital information like address and contact number.

3. Bank Statements and credit report

The banks often check bank statements of the business organisation before sanctioning a business loan. As the business loans are unsecured, bank statements assure that the borrower can repay it within time.

Credit score, however not mandatory, can also be checked by some loan providing entities to make sure the borrower has a good credit history.

4. Deed of Partnership

In the case of partnership businesses, the partnership deed is an important requirement.

Final Words

Business loans are easily available in the market, and the entrepreneurs take it to manage hefty finances. However, it is crucial to choose a reliable organisation for taking a business loan.

If you are about to take a business loan, try choosing a bank or NBFC that provides you with the highest loan capital. You can also expect it to allow you to choose the tenure.

As an entrepreneur, you must always make repayment plannings properly and never fail an EMI of a business loan. As per the laws, the business loan provider has the power to seize a business organisation in case of prolonged discontinuation of monthly repayments.

Also read:
Business Insurance: Why is it important in the modern era?
What type of permissions are required before starting any business?
Should You Lease or Buy Equipment for Your Small Business or Startup?
Business Safety: Tips to ensure safety at a workplace

FAQs

Q. Can I get a business loan if I don’t have an existing business?

Ans: If you do not have an existing business, you can get a start-up loan instead of a business loan. However, you have to produce a proper business plan.

Q. I have applied for a business loan already. Can I expect to get it?

Ans: The bank or NBFC has the sole power to sanction your business loan. So, even if you do not get it from one organisation, apply it to various other organisations as well.

Q. Can I use the capital of the business loan in any spectrum apart from the business?

Ans: No, the capital you get from a business loan must be used for business purposes only. The loan provider will have an observation for checking if all the norms are properly followed or not. You should always follow the standards of business loans properly to avoid legal harassment.