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BUSINESS LOAN
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Business Loan
A Business Loan can assist businesses in real time and help them overcome minor and major obstacles. Business and economics are constantly changing, and while the competition is becoming more and more intense, opportunities are forever expanding. Innovative thinking and new ideas have immense potential for both established and new businesses if acted upon and realised. But, only some end up capitalising on their business ideas as they get caught up in managing their finances. During such times, a timely capital infusion into your company allows you to open the doors of possibility and enable you to deal with any hurdles on the way to success. Today, the ease with which business funding is available with Banks and NBFCs.
Both aspiring, as well as well-established entrepreneurs, require financial support. A Business Loan provides this financial support; with this loan, you can upscale your business activities. Before going forward, every business owner should know the types of business loans, interest rates, and tenure. There are primarily two types, secured business loans and unsecured business loans. One of the primary factors determining whether a business loan is secured or unsecured is the requirement of collateral. However, there are other important things about business loans that you should know about. Let us have a detailed understanding of business loans here.
Compare Banks by their Interest Rates
| Name of the Bank/NBFC | Interest Rate | Loan Amount | Tenure | Processing Fee |
| ICICI Bank Personal Loan | 10.75% p.a. onwards | Up to INR 50 Lakhs | Min:- 1 Year Max:- 6 Years | Up to 2.5% of the Loan Amount |
| Kotak Mahindra Bank Personal Loan | 10.99% p.a. onwards | Up to INR 25 Lakhs | Min:- 1 Year Max:- 5 Years | Up to 3% of the Loan Amount |
| Axis Bank Personal Loan | 10.25% p.a. onwards | Up to INR 40 Lakhs | Min:- 1 Year Max:- 5 Years | Up to 2% of the Loan Amount |
| IDFC First Bank Personal Loan | 10.49% p.a. onwards | Up to INR 1 Crore | Up to 5 Years | Up to 3.5% of the Loan Amount |
| HDFC Bank Personal Loan | 11% p.a. onwards | Up to INR 40 Lakhs | Up to 6 Years | Up to INR 4999 |
| Yes Bank Personal Loan | 10.99% p.a. onwards | Up to INR 40 Lakhs | Min:- 1 Year Max:- 5 Years | As per the Bank’s Norms |
| Bajaj Finserv Personal Loan | 13% p.a. Onwards (Salaried) 17% p.a. Onwards (Non-Salaried) | Up to INR 25 Lakhs (Salaried) Up to INR 45 Lakhs (Non-Salaried) | Up to 5 Years (Salaried) Up to 7 Years (Non-Salaried) | Up to 4% of the Loan Amount |
| Tata Capital Personal Loan | 10.99% p.a. onwards | Up to INR 35 Lakhs | Up to 6 Years | Up to 2.75% of the Loan Amount |
| Aditya Birla Finance Personal Loan | 13% p.a. onwards | Up to INR 50 Lakhs | Up to 7 Years | Up to 3% of the Loan Amount |
| Incred Personal Loan | 11.49% p.a. onwards | Up to INR 15 Lakhs | Up to 7 Years | As per the Bank’s Norms |
| Paysense Personal Loan | 2.3% onwards per month | Up to INR 4 Lakhs | Up to 540 Days | Up to 3% of the Loan Amount |
| Finnable Personal Loan | 16% p.a. onwards | Up to INR 10 Lakhs | Min:- 6 Months Max:- 5 Years | Up to 4% of the Loan Amount |
| Upward Personal Loan | 18% p.a. onwards | Up to INR 7 Lakhs | Up to 5 Years | As per the Company’s Norms |
| Finzy Personal Loan | 18% p.a. onwards | Up to INR 5 Lakhs | Up to 3 Years | Up to 5% of the Loan Amount |
| Ashv Finance Personal Loan | 18% p.a. onwards | Up to INR 7 Lakhs | Min:- 2 Year Max:- 5 Years | As per the Company’s Norms |
| AU Small Finance Bank Personal Loan | Up to 30% per annum | Up to INR 7.5 Lakhs | Min:- 1 Year Max:- 5 Years | Up to 5% of the Loan Amount |
| IndusInd Bank Personal Loan | 10.49% p.a. onwards | Up to INR 25 Lakhs | Min:- 1 Year Max:- 5 Years | Up to 3% of the Loan Amount |
| Fullerton Personal Loan | 11.99% p.a. onwards | Up to INR 30 Lakhs | Up to 5 Years | Up to 6% of the Loan Amount |
| RBL Bank Personal Loan | 17.50% p.a. onwards | Up to INR 20 Lakhs | Min:- 1 Year Max:- 5 Years | Up to 2% of the Loan Amount |
| Home Credit Personal Loan | 2% onwards per month | Up to INR 5 Lakhs | Min:- 6 Months Max:- 4 Years | Up to 5% of the Loan Amount |
| Citibank Personal Loan | 10.75% p.a. onwards | Up to INR 30 Lakhs | Min:- 1 Year Max:- 5 Years | Up to 2% of the Loan Amount |
| Ujjivan Small Finance Bank Personal Loan | 11.49% p.a. onwards | Up to INR 10 Lakhs | Up to 5 Years | Up to 2% of the Loan Amount |
| Standard Chartered Bank Personal Loan | 11.49% p.a. onwards | Up to INR 50 Lakhs | Up to 5 Years | Up to 2.25% of the Loan Amount |
| Punjab National Bank Personal Loan | Up to 15.85% per annum | Up to INR 20 Lakhs | Up to 5 Years | Up to 1% of the Loan Amount |
| SBI Personal Loan | 10.30% p.a. onwards | Up to INR 20 Lakhs | Up to 6 Years | Up to 1.5% of the Loan Amount |
| Bank of Baroda Personal Loan | Up to 17.05% per annum | Up to INR 20 Lakhs | Up to 6 Years | Up to 2% of the Loan Amount |
| Bank of India Personal Loan | 12.75% p.a. onwards | Up to INR 20 Lakhs | Up to 3 Years | Up to 2% of the Loan Amount |
| IDBI Personal Loan | Up to 14% per annum | Up to INR 5 Lakhs | Min:- 1 Year Max:- 5 Years | Up to 1% of the Loan Amount |
| Union Bank of India Personal Loan | 10.30% p.a. onwards | Up to INR 15 Lakhs | Up to 5 Years | Up to 1% of the Loan Amount |
| IIFL Personal Loan | 14.25% p.a. onwards | Up to INR 5 Lakhs | Up to 3 Years | As per the Company’s Norms |
Type of Business Loans
You can get two types of business loans. Both of them are explained below.
Secured business loans are the safest and most popular forms of credit for established businesses. The assets a business needs to pledge as collateral for a secured business loan are
- Inventory
- Equipment
- Land
- Building
- Unpaid invoices
A business owner can get a secured business loan against mortgaged property. They can also provide fixed deposits, government securities, savings accounts, gold, and other precious metals as collateral for the loan.
An unsecured business loan does not require collateral. Business owners with a strong credit score can consider applying for an unsecured business loan. Unsecured business loans have stringent standards and are only easily available for some businesses. If the borrower fails to repay the unsecured business loan, there will be legal action against him.
Particulars | Unsecured Business Loan | Secured Business Loan |
Collateral | No collateral needed | Business owners may provide an asset, such as land, equipment, inventory, property, etc., as collateral against the loan. |
Credit Score | Based on the credit score, banks and NBFCs decide on the loan amount and interest rate. | A secured business loan requires a lower credit score than an unsecured business loan. |
Interest rate | A higher interest rate than secured business loans as they do not have a guarantee of an asset to back the loan amount. | A lower interest rate is charged as risk is lower |
Guarantor | No guarantor is required | A business owner or partner can pledge their land, property, or gold as collateral against the loan. |
Choose between an unsecured and secured business loan depending on factors like credit score, repayment capacity, the time required to repay the loan, etc.
Business Loans for women help women entrepreneurs scale businesses. A small Business Loan for women helps scale business to further heights, such as upgrading machinery, hiring new workers and building infrastructure. Check out the benefits of Business Loans for women below –
- Helps meet day-to-day business needs: Day-to-day business needs sometimes get overwhelming and pressure business owners. A Business Loan for women is a way to take care of these short-term financial needs.
- No collateral obligations: Small Business Loans for women are collateral-free. The borrower doesn’t have to put any security in exchange for the loan amount.
- Low-interest rates: Women business owners can get a Business Loan at lower interest rates. Joint business owners can take advantage of this on their interest rate by getting these loans in the name of the woman partner.
- Minimal documentation: Another benefit of Business Loans for women is that you can get them at minimal documentation and processing fee.
Banks provide MSME/SME (Micro, Small, Medium, and Enterprise) loans. It is a type of financial assistance provided to small businesses for long-term, working capital, growth, or expansion purposes. These business loans are highly beneficial for MSMEs in maximising their full potential through adequate funding.
Key highlights of MSME Loans
- Loan eligibility requirements are moderate.
- Tax exemptions on certain items
- There are government-backed MSME Loans available.
- Equal opportunity for all types of businesses
- Funding to meet all business requirements
Business Loans come with the following eligibility criteria.
- Age: 21 years to 65 years
- Business profitability: The business must have a steady profit from the past year
- Business turnover: In the past year, the business turnover should be INR 40 Lakh or above
- CIBIL score: CIBIL score should be 750 or above (for unsecured business loans).
Any bank and NBFC will have doubts and inquiries regarding your business’ growth plans. This is why verification of Business Loan documents is necessary for approval.
- Application form: Duly filled and signed application form
- KYC documents: Aadhaar card, PAN card, Voter’s ID, etc.
- Income documents: GST documents, Balance Sheets, and tax audit documents
- Photographs: 4-5 passport-size photographs
Requirement of a Business Loan
In order to apply for a business loan, you need to check these things off your list:
Having a proper business plan beforehand is extremely important. Your business plan outlines your ideas and strategies. Ensure your business plan is mapped around your industry environment and socio-economic conditions. This shows the banks and NBFCs that your business can grow and that you have the potential to pay off the borrowed amount. Other than that, your business should address all the rules and regulations of the government. Explain to the bank and NBFC how you plan to spend the loan in your business plan. A detailed, thorough business plan will give you a better chance of obtaining business loan approval. Good Credit Score A credit score is crucial as it indicates your repayment capability.
It doesn’t matter which bank you choose. A good credit score is necessary to get an unsecured business loan. In case of a poor credit score, there are several methods to improve your credit history. One of them is to maintain a credit utilisation ratio of approximately 30%. In addition, ensuring timely repayment of the loan amount and resolving outstanding debt will help you improve your credit score. Anticipation of risk factors There is no doubt that sometimes businesses fail. Every business owner must be prepared and have a well-thought-out risk mitigation plan. It will improve the chances of Business Loan approval. So anticipate potential risk factors regarding the business and prepare for them. Cash flow stability In order to get a Business Loan, you must have a stable cash flow.
Inconsistency reflects a bad image of your business. And this makes you a risky borrower who cannot repay a loan. For banks, it’ll take a lot of work to get timely repayment when a business has an inconsistent cash flow. As a result, you would most likely be rejected. This is why when you are applying for a business loan, ensure a stable cash flow, as it is a prerequisite to getting a loan accepted. Compare Banks Not all banks will meet your financial requirements. Thorough research is crucial when choosing a lender. It will help you get the perfect business loan as per your requirements. Compare numerous banks and NBFCs and make a list of all the prospective creditors. Read the reviews and feedback from other borrowers and narrow your search. Below is the list of top banks and NBFCs. Timely repayment A timely repayment is another essential thing to consider while applying for a loan is to create reminders to repay all your debt on time. A well-prepared repayment plan will improve your chances of getting loan approval. Start keeping a tab of all the additional charges and ensure you save some by getting a Business Loan. Gaining the lender’s confidence and trust is vital to get a loan. You need to communicate and tell them your repayment plan to build trust and get approved. You can draft your repayment plan by using online EMI calculators. Late repayment can lead to bad credit scores, which can cause difficulties in approving future loans. However, always have a backup plan.
A Business Loan EMI calculator helps you determine how much you can borrow for your company without significantly impacting your monthly expenses. It determines the monthly payment you must make throughout the repayment period. You can manage the repayment wisely if you check your EMI amount beforehand. The EMI calculator will compute your due monthly payments and the total interest on your Business Loan as per the chosen loan term. It is a wise idea to know your monthly payment amount before applying, as it will have a positive impact on your budget, future finances, and more.
The EMI will be calculated using the formula:
EMI = [P * R * (1+R) ^ N] / [ (1+R) ^ (N-1)],
Where,
- P = Principal amount
- R = Rate of interest
- N = Loan Tenure The formula mentioned above is how the EMI calculator operates. In certain cases, when the interest rate is dropped, the interest is computed each month anew on the lower principal amount.
A Business Loan EMI calculator provides quick access to the EMI amount. To use an EMI calculator, use the following steps:
- Click on the business Loan EMI calculator tab when you visit the bank website.
- Enter the basic details of the loan, such as Loan Amount, Interest Rate, and Loan Tenure Click on the ‘Calculate’ button and the Business Loan EMI will be immediately calculated and displayed on the user’s screen.
- Best for timely repayment planning
- Shows an approximate estimate of the EMI for the suggested Business Loan
- Shows an amortisation plan to give a thorough overview of repayment
- Aids in better future financial planning so you can manage other EMIs or bills
- Provides a choice of schedules and EMIs as per your needs.
- Loan amount – The amount you plan to borrow will determine your EMI. When the amount is larger, the EMI is higher, and when it is lower, the EMI stays lower. But it also depends on how long the loan will take to pay off.
- Rate of interest – This factor is crucial in determining loan EMIs and should only be selected after carefully weighing the loan possibilities of various banks and NBFCs’ interest rates. Instead of simply choosing the lowest interest rates.
- Loan Tenure – The loan tenure, also known as the repayment period, is crucial in determining the EMI. A longer-term guarantees lower EMI, and a shorter term guarantees a higher amount.
You can apply for a business loan by following these steps:
1. Go to the bank web portal and fill in the application form.
2. Enter accurate and genuine information regarding KYC and your business.
3. After submitting your form, the bank representative will contact you and fill you in on the further procedure.
4. Submit the documents and wait for your loan to be processed.
FAQs
You should consider getting a business loan for several reasons:
Capital Investment: It provides the necessary funds to start or expand your business, allowing you to purchase equipment, inventory, or hire additional staff.
Cash Flow Management: A loan can help smooth out cash flow fluctuations, ensuring you have enough working capital to cover operational expenses, especially during slow periods.
Expansion and Growth: If you’re looking to grow your business, a loan can be used to open new locations, enter new markets, or launch new products or services.
Equipment and Technology Upgrades: Loans can be used to invest in updated technology and equipment, helping you stay competitive and efficient.
Marketing and Advertising: Securing a loan can provide the necessary funds to implement effective marketing campaigns, helping you reach a wider audience and generate more revenue.
Yes, it is possible to raise the credit limit for a business loan. This can be achieved through several methods:
Positive Payment History: Consistently making on-time payments for existing loans and credit lines can build trust with lenders, increasing the likelihood of a credit limit increase.
Demonstrated Business Growth: Showing evidence of steady revenue and business growth can instill confidence in lenders and lead to a credit limit increase.
Requesting a Review: Contacting your lender and formally requesting a credit limit increase is a common way to explore this possibility. Be prepared to provide updated financial information and a compelling case for the increase.
Improved Credit Score: If your business’s credit score has improved since the initial loan was approved, it may be a strong indicator that you can handle a higher credit limit.
Utilization Ratio: Maintaining a low utilization ratio (the amount of credit used compared to the total available) can signal responsible financial management and make a strong case for a credit limit increase.
2.5% business loan fees refer to the cost associated with borrowing money for business purposes.It represents a percentage of the total loan amount that a lender charges as a fee for providing the funds.
Business Plan: This outlines your business goals, financial projections, and strategies for growth.
Personal Identification: Such as driver’s license or passport, to verify your identity.
Business Registration Documents: These include your business license, articles of incorporation, or other legal paperwork.
Financial Statements: Including balance sheets, income statements, and cash flow statements to demonstrate your business’s financial health.
Tax Returns: Both personal and business tax returns for the past few years.
Yes, offering security, such as collateral or a personal guarantee, can significantly increase your chances of being approved for a business loan. It provides the lender with a level of assurance that if you’re unable to repay the loan, they can recoup their losses by claiming the pledged asset. However, not all business loans require security. Some lenders offer unsecured loans, but they typically have stricter eligibility criteria and may come with higher interest rates.
There are several methods available for loan repayment, depending on the type of loan and the terms agreed upon with the lender. Here are some common methods:
Standard Repayment Plan: This is the most straightforward method where you make fixed monthly payments over the life of the loan. The amount is calculated to ensure the loan is paid off within the agreed-upon term.
Graduated Repayment Plan: Payments start lower and increase gradually, typically every two years. This is beneficial for individuals who expect their income to increase over time.
Income-Driven Repayment Plans: These plans adjust your monthly payments based on your income and family size. Examples include:
- Income-Based Repayment (IBR)
- Pay As You Earn (PAYE)
- Revised Pay As You Earn (REPAYE)
- Income-Contingent Repayment (ICR)
Extended Repayment Plan: This plan allows you to extend the repayment period beyond the standard term, which can lower your monthly payments.
Income-Sensitive Repayment Plan: This is specific to Federal Family Education Loan (FFEL) Program loans. It adjusts your monthly payment based on your annual income.
