Business Loan

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Organizations require sufficient measure of the venture to support consumptions identified with development, for example, adding new lines to their current items/administrations. In such a circumstance, business credits can prove to be useful as they give genuinely necessary monetary help to organizations with the goal that they can develop more aggressive in the picked markets. Like some other credit, a business advance is an obligation which the organization is committed to paying back to the bank inside a particular residence as per the terms and conditions said in the advance understanding. New company advances can be taken for an assortment of fundamental prerequisites like beginning up another firm, business developments, merchant and seller financing and so forth.

The real advantage of business advances in India is that it frequently does not require any security and the greater part of the banks authorize business credits with insignificant pre-installment charges. Besides uncommon plans are at present accessible including business credits for ladies, Mudra plot for littler organizations and also independent company advances for experts. Another advantage is that if there is a disappointment of reimbursing the advance, at that point the entrepreneur won’t exclusively confront the weight of punishments however the entire organization will be exchanged keeping in mind the end goal to clear the business credit.

Features of Business Loans

• Business Loans can be availed for as small an amount as Rs.30,000. Larger amounts can be availed depending on various factors including the size of the business, reported profits of the business, existing business liabilities, etc.
• Business loans in India are offered in a manner similar to personal loans. Therefore, the documentation to avail a business loan is simple and the turnaround time is relatively short.
• Business Loan tenure can be from 12 months to 48 months. In most cases, the borrower can also avail the benefit of prepayment in lieu of a nominal prepayment charge, which provides additional flexibility to the borrower.
• Business loan interest rates vary from 17% to 25% which depends on various factors including but not limited to eligibility of the applicant, the size of the business, credit rating/score of the applicant, type of business and loan quantum/tenure.

Categories of Business Loan

Bill discounting: This process gets the borrower instant cash back on various large purchases and this essentially amounts to the discount on the credit sales. All one need to do is to submit the important documents which validate business transactions like invoices, transportation receipts, bill of lading etc.

Letter of credit: A letter of credit is issued by the buyer’s bank which declares that a seller will receive the payment in full when all the terms and conditions regarding sale and delivery have been completed. This situation generally arises in international business finance where seller and buyer are often unknown to each other, therefore the business transactions is done on the basis of bank’s creditworthiness.

The important documents which a seller has to present in order to get the payment on the basis of a letter of credit include:

• Commercial documents such as invoice and lading bills
• Transportation documents
• Insurance certificate
• Documents such as origin certificate, inspection certificate, legal documents, etc.

Bank Guarantee: A bank guarantee is a unique type of pre-approved secured business loan that can be availed by various business borrowers including SMEs such as public limited companies, private limited companies, partnership firms and proprietorship firms. Usually provided in lieu of collateral, bank guarantees are offered against multiple types of security including commercial, industrial and residential property. Bank guarantee is in effect a promise by the lender that in case the business that has been guaranteed defaults on existing financial commitment to stakeholders, the lender will cover the costs. A bank guarantee thus allows a growing business to draw down loans, buy equipment or additional goods on credit.

Special schemes for women entrepreneurs

Nowadays, banks are giving attractive schemes to women entrepreneurs. These exclusive business loans for women provide them relief in terms of interest rates, acceptable loan amounts and applicable collateral. Apart from the business loan itself, some banks also have specialized departments where they provide women entrepreneurs with business consulting, training and counseling along with various avenues for marketing and showcasing their products. They also show them the realistic view of their business by giving references of the similar businesses. Women entrepreneurs whose ownership is less than 50 percent in the company are not allowed to avail the benefits of the women’s special schemes. Some leading examples of such loans include Annapurna, mudra loan for women, etc.

MUDRA YOJANA:

This is a special government-sponsored business loan scheme for small and medium businesses in India including those owned by women. Though the funding is provided through the banking institution, it is the government of India who provides the required cash to the bank. Thus, the bank is able to offer mudra loans at a lower rate as compared to standard business loans in India. This scheme is specifically designed to make business loans to small businesses more affordable and available with ease all over India.

Eligibility Criteria for Business Loan

The following are some key entities that are eligible for a business loan:

• • Self-employed businessmen/professionals
  • Limited or private limited firm
  • Manufacturer, retailer or service provider

All these entities need to meet the following criteria to avail business loan:

• The business owner/professional must be aged between 21 years to 65 years
• The business should have been operational for at least 3 years
• The business turnover must be at least Rs.50 lakhs per annum with minimum 2 lakhs of profit, however lower amount loans may also be availed as per the lender’s discretion.
• The business owner/business must submit the last 3 years of ITR statements.
• A business partner can be a co-applicant in the business loan application. This is in fact recommended as it would increase the probability of getting a loan of higher quantum with longer tenure and interest rate.

Documents Required for Business Loan

The following are some key documents that need to be submitted by an applicant who plans to take a business loan:

• Last 3 years’ Income Tax statements
• Bank account statements
• Business proof
• Applicable certification related to the practice
• Proof of ownership of the possessions which are used for business purposes
• Recent photographs of applicants
• Identity proofs such as Aadhar Card, Voter ID Card, PAN Card, Company registration certificate, etc.
• Residence proof of applicant
• KYC documents of the co-applicant (if applicable). In case business loan for women is the category of choice, proof of majority ownership by the woman needs to be provided by the investor.