Business Loan

Business Loan Features and Benefits

Business loans come with numerous benefits and features to help borrowers cope with financial obligations. The following are a few features that you unlock when you count on a business loan:

• Fast Disbursal: Generally, business professionals apply for a business loan when they need instant access to funds. One of the best parts of a business loan is that it comes with quick disbursal. You don’t have to wait for months to access funds. The amount is disbursed within 3 to 5 working days.
• Minimum Documentation: One of the foremost features of a business loan is the minimal documentation requirement. Banks and finance companies process business applications with little documentation. No hectic paperwork is required. With the online business loan application process, you get the option to submit a scanned copy of the documents, that’s all.
• Competitive Business Loan Interest Rates: Banks and financial institutions offer business loans at attractive interest rates. Debtors can get commercial loans without higher monthly repayments.
• No Prepayment Charges: Prepayment of business loans is permitted without additional fees or charges. However, this may vary from one bank to another.
• Flexible Repayment Tenure: In general, banks and financial providers offer business loans with flexible repayment tenure. You can choose your repayment tenure as per your choice. However, don’t forget that a longer repayment period results in an increased payable interest component.
• Collateral-Free Loans: The availability of unsecured business loans allows you to get collateral-free business loans. Such loans are time efficient and can be easily accessed without pledging any commercial or personal assets.

Business Loan Overview

A business loan is a sum of money obtained by a company to cover expenses it is unable to cover on its own. Some entrepreneurs utilise business loans to pay for salary and wages while their new firm is getting off the ground, whereas others use borrowed funds for office supplies, inventory, business growth and business projects.

Lenders want to understand how the company plans to spend the borrowed funds, so business owners should make sure they have a detailed plan in place. It’s critical to impress lenders by appearing professional, or the loan application may be denied.

Businesses can pick from a range of loan choices, such as business startup loans, small business loans, and business loans for women, among others.

Business Loan Eligibility Criteria

Banks and finance providers have preset business loan eligibility criteria. To procure a commercial loan with the utmost ease, stick to the following eligibility criteria:

• Applicants must follow the RBI’s definition of Micro and Small Businesses.
• The sole purpose for obtaining a business loan (working capital, business expansion, or the purchase of machinery or equipment) must be specified.
• A personal guarantee is required. This will necessitate the main partner to act as a loan guarantor.
• The company must have been in operation in the same domain for at least three years.
• Financial papers, such as audited financial accounts, are unavoidable.
• Tax audit report (last 2 years).
• Bank statement of the business account (last 6 months).

Factors Affecting Business Loan Interest Rate

Certain criteria are crucial in calculating the interest rates that apply. The following variables may affect the offered business loan interest rates:

1) Nature of Business

One of the essential aspects influencing the interest rate on your business loan is the type of business. Your business creditworthiness will decide what type of business loan you can get and at what interest rate. Your business should be involved with high-quality products and services. Additionally, the location in which you operate should not be on any blacklists.

2) CIBIL Score or Credit Score

A high CIBIL score can have a significantly positive impact on the offered interest rate. The lender will provide you with the lowest interest rate loan if your CIBIL score is high. On the flip side, they may charge you a higher interest rate or possibly reject your mortgage collateral if your CIBIL score is low.

3) Business Experience

The experience of the organisation is vital because a well-established enterprise is considered secure and risk-free. If you’ve been in business for a while, creditors may be willing to provide you with a business loan at a reduced interest rate to help you expand.

4) Repayment History

Another important aspect that determines business loan interest rates is your repayment history. If you consistently make your payments on time, you’ll have a better chance of getting a business loan with a reduced interest rate.

Business Loan Interest Rate

The business loan interest rate is determined by a number of factors, including the borrower’s financial profile, the purpose of the loan, collateral, the credit score or credit rating, and much more.

The following factors affect the business loan evaluation process:

• The financial feasibility of the business model.
• The amount of competitiveness in the industry.
• At the industrial level, the performance of the corporate entity.
• Annual turnover and overall business growth or expansion.
• Ratio financiers.

Banks decide the interest rates at which a loan can be issued to a borrower based on all of these indicators. The applicant’s personal creditworthiness is taken into account in addition to the business’s trustworthiness. Lenders typically offer commercial lending rates ranging from 7% to 21%.

Business Loan Documents Required

The following business loan documents are mandatory to avail of a loan with utmost ease:

• Form and Photographs: Duly filled business loan application form and 2 passport size photographs.
• Proof of Identity: PAN card, passport, Voter ID card, MAPIN Card or driving licence.
• Residence Proof: Voter ID card, ration card, utility bills, including electricity bill, telephone bill, Aadhaar card or lease agreement.
• Age Proof: Voter ID card, Aadhaar card, PAN card or passport.
• Financial Documents: Income Tax Returns for the last 2 years, balance sheet audited by a certified Chartered Accountant (CA), profit and loss statement (2 years), along with a statement representing the business transaction.
• Proof of Income: Bank statement of business account as well as the personal account for the last two years.
• Proof of Business Ownership: Documents including the declaration of a sole proprietorship, a copy of the memorandum along with the articles of association will be required.