Finance helps entrepreneurs fulfil their goals by providing the necessary funds to grow their business. It is imperative to have adequate finance so as to ensure smooth functioning of the business activity. There are many way by which an entrepreneur can raise finance and the most convenient and fast way is by the way of “Business Loans”. This is also termed as “BL”.
Business loans are the loans given to a self-employed individual or a business entity in order to help expand or run their business operations. By their nature, business loans are unsecured loans, which means that they do not need any security, collateral or guarantor.
Business loans are quite different from mortgage loans or loans against machinery which require some security or involve collateral. Each of them falls in a different category of loans and hence is dealt with in a separate manner by banks and NBFC.
Basics criteria of Business loan
The customers are judged on the basis of different financial criteria while sanctioning the business loans, business turnover and profitability being the most important of them all. Also the important criterion is your ability to pay back the loan amount along with interest in the stipulated period of time by way of Equated Monthly Instalments (EMI)
The loan amount of business loan ranges from 5lacs to 50lacs. Business loans are usually short terms loan where the tenor ranges from 12 months to 48 months, the interest rate in this loan is higher as compared with secured loans which ranges from 15% to 18%, depending upon the profile of the customer. The processing fee on business loans is 2.5% plus services tax of the loan amount but the same is negotiable. Lastly business loan attracts pre-payment charges in case you plan to close the loan prior to the sanctioned term. The credit score plays a very important role in getting a business loan, the required credit score for a prompt sanctioning of a business loan is 750+.
Pros & Cons of Business Loan
- Fast and Convenient- Loans usually get sanctioned in 7 working days.
- Business Loans are unsecured in nature of No collateral required.
- Unlike overdrafts, business loans are not repayable on demand, they can be re-paid by way of EMI.
- Tenor of the loan is short as compared with secured loan hence the amount of EMI is more.
- The rate of interest and processing fee in business loan is higher.
- Business loans aren’t very flexible – e.g. you may have to pay additional charges if you repay early.
- Business Loans are available for Proprietor, Partner, Partnership firm, Director. Pvt ltd Company involved in following businesses;
- Trading – Dealer, Distributor, Stockist, Wholesalers etc
- Service Providers
- Applicant should have minimum turnover of Rs. 60 lakhs and the business should be profit-making in the last two years. Some Financial institutions needs minimum turnover of 1 crore, i.e audited financials to underwrite business loans.
- Be in the current business for 3 years and have 5 years of total business experience.
- Age should be minimum 21 years, and a maximum 65 years at the time of loan maturity.
- PAN Card – For Company /Firm/ individual
- Proof of your identity: Copy of Aadhaar Card/ Passport/ Voter’s ID card/ Pan Card/ Driving License
- Proof of your address: Copy of Aadhaar Card/ Passport/ Voter ID-Card/ Driving License
- Bank Statement (last 6 months)
- Last two years ITR along with computation of income, Balance sheet and profit & loss accounts. Your financials should be Certified /Audited by a chartered accountant
- Proof of Business continuation (ITR/ Trade license / Establishment / Sales Tax certificate)
- Proof of Ownership of residence or office.
- Other Mandatory Documents (Sole Proprietor Declaration Or Certified Copy of Partnership Deed, Director Certified true copy of Memorandum & Articles of Association & Board resolution (Original)