What is Business Loan?
Business loan is a funding support offered by financial institutions to meet the day-to-day business requirements. Business loan can be availed by individuals, MSMEs and many other entities. Applicants who own house, shop, office and godown have more chances of loan approval, as banks consider them more reliable in repaying loans in time. Most of the banks do not require collateral or security to be submitted to avail unsecured business loan.The minimum loan amount offered starts from Rs. 50,000 and is usually offered by Non-Banking Financial Companies (NBFCs), Small Finance Banks (SFBs) or Micro Finance Institutions (MFIs), whereas applicants can avail collateral-free business loans maximum up to Rs. 1 crore. Small business loans are also available for MSMEs and startups.
Business Loan Eligibility Criteria
Age Criteria: Minimum 18 years & maximum 65 years.Applicant with good credit score and no past loan defaults, if anyMinimum Annual Turnover of Rs. 10 lakh for existing enterprises
Documents Required for Business Loan Application
When applying for a business loan, you will need to submit the following documents:
Duly filled application form along with 2 passport-sized photographsKYC Documents of the applicant, including PAN card, Passport, Aadhar Card, Driving License, Voter ID card, Utility Bills (Water/Electricity Bills)Last 1 years’ bank statementAnnual Business Turnover: Minimum Rs. 10 lakh or above (for existing businesses or enterprises)Non-Collateral OverdraftCopy of Business Incorporation
Types of Business Loan
1. Term LoanTerm loan is offered under various types, such as short-term loan, long-term loan and other small business loans. The loan amount offered under term loan depends on the applicant’s profile and business requirements that can be repaid in 12 months to 5 years, in the form of EMIs. Term loans are divided into two parts, unsecured business loans and secured business loans. Secured loans require collateral to be submitted with the banks, which is not in the case with unsecured business loans.
2. Working Capital LoanWorking capital loans are availed to meet the day-to-day business requirements or to manage business cash flow. The working capital loan can be availed for various other purposes, such as business expansion, buying equipment or machinery, purchasing raw material or goods, paying-off salaries or rent, enhancing inventory and much more.
3. Bill (Invoice) DiscountingInvoice discounting is a financial instrument offered by banks and NBFCs. Bill discounting is a source of working capital finance for the seller of goods on credit. It is a discount which a financial institution takes from a seller’s customer. Through the payment being made by letter of credit, the buyer has the option of buying goods from the seller. Bills that come under bill discounting are termed as ‘bills of exchange’.
4. Letter of CreditLetter of credit is a payment instrument used mainly in international trade in which the bank provides monetary guarantee to enterprises which deal in import and export of goods. Enterprises doing businesses overseas have to deal with unknown suppliers and they require assurance of payment before performing any transaction. Therefore, a letter of credit is important to provide payment assurance to the suppliers or exporters.
5. Point of Sale (POS) LoanPoint of Sale Loan is a type of funding wherein merchants offer their customers some financial assistance at point of their purchase. Business owners, enterprises, MSMEs, entrepreneurs, retailers can avail Loan against POS machines to start a new business or to manage their existing businesses. POS Loan is also termed as Merchant Cash Advance in which the loan amount depends on business volume generated via POS terminals.
6. Overdraft LoanAn overdraft means overdrawing money from ones’ current/savings account even if the account balance is zero. An agreed rate of interest will be charged, if the overdrawn amount is within the limits of a preceding agreement. The interest rate is charged only on the utilized amount of the total withdrawal limit.