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22 Sep
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Businesses require capital to fund their daily expenses and carry out business expansion such as buying new plant or machinery, raw material purchase, etc. In case of financial crunch or expansion, companies may avail of a business loan to get financial assistance. A business loan is a time bound debt that the company is obligated to repay under fixed terms and conditions.

Some business owners use business loans to pay for daily expenses like salaries and wages until their new company gets off the ground, while some use borrowed funds for office supplies, inventory or furthering projects. Business owners must make sure to have a clear outline of how the money will be spent since lenders need details on where the borrowed money will go.

 Getting a business loan/ SME loan has many benefits. Some of them are as follows:

  1. Simple Eligibility Criteria

Both big and small businesses can get a business loan depending on their requirements. The eligibility criteria is not too strict and there are separate categories of business loans depending on your company's annual turnover. Key factors that can influence eligibility include credit history, business feasibility and future business plans.

  1. Attractive Interest Rates

One of the greatest benefits of business loans is a flexible repayment schedule and affordable interest rates so that the borrowers are not pressurized and the repayment doesn't take away business growth.

  1. Minimum documentation

The documentation for a business loan is simple. All you need are the following documents:

  • Duly-filled application form

  • Passport-size photographs

  • KYC documents

  • Annual returns of the business

  • Business registration details

  1. Sufficient Loan Amount With Fast Approvals And Disbursement

A business loan gives you immediate access to funds which you can use as per your requirements and ensures that your urgent requirements are fulfilled.

  1. Pay As You Go

Business loans have a special feature of pay as you go. Under this facility, borrowers are given a credit limit for a chosen tenure. They can withdraw money multiple times within this credit limit and pay interest only on the amount utilised. The EMI's have to be paid on the interest component while the principal amount must be paid only at the end of the tenure. This line of credit helps in meeting the fluctuating business expenses.

Who Can Apply For A Business Loan?

 

There are a couple of pointers that need to be kept in mind before applying for a business loan. Lenders are looking for certain indicators of business stability as well as the borrower's financial acumen in order to be sure of their investment. Broadly, the following categories of people can avail a business loan:

  1. Self Employed Professionals (SEP)

This category includes allopathic doctors, chartered accountants, company secretaries, architects, etc. This is subject to the applicants who have proof of qualifications and also are practicing their profession.

  1. Self Employed Non Professionals (SENP)

This category includes traders, manufacturers and entities of the following kind:

  1. Partnerships.

  2. Limited Liability Partnerships.

  3. Private Limited Companies.

  4. Closely Held Limited Companies.

Mostly the following Eligibility & Documentation is required in order to be eligible for a business loan

Eligibility:

  • Public, Private, Proprietorship or Self-employed

  • Minimum 3 years in current business

  • Business profitability as per industry norms

Documentation:

  • Last 3 years audited financial statements and projections

  • Profiles and KYC of Directors and Partners

  • Company constitution documents and registration certificates

Another very important set of criteria includes the following:

  1. Credit History

Borrower must have a good credit history accompanied by a good credit score.

  1. Business Feasibility

Every business has an expected trajectory that needs to be mapped. Lenders must be confident about the future of the business to invest in it. Borrowers must ensure they create detailed pro-forma statements in industry approved standards to ensure smooth communication.

  1. Business Plan

Financial viability will be the single greatest factor in determining a business loan approval. Capital estimates, operational flow and outflows, asset and equipment acquisition and maintenance must be researched and well presented.

Business loans can be taken to fund salaries, expansion, buy assets and equipments, upgrade technology or establish new project units. They are the most effective and immediate source of capital for small scale and medium scale businesses and working professionals. The NBFC/ Financial Institutions of India are one of the strongest in the world and they are still constantly tweaking their products and structure to reach the massive chunk of populace that is still not using financial services and products. Business loans help companies achieve greater progress with lesser risks and a steady stream of credit which is essential for every growing business.

Did You Know

Disbursement

The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.

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