Business Loans

Business Loans

Business Loans are very popular among people as it is beneficial for those who want to stand their own business. Business Loans are offered by lenders, credit unions, and banks. Your business needs to be old for at least 6 months. Apart from it, other factors like personal credit scores and the relationship with lends will also play a great role.

Two types of loans available in India as Commercial or Business Loans

Professional Loans
Trade Loans
Let us look at both Professional and Trade Loans in details, which can be both Secured or Unsecured and Short Term or Long Term in nature as per the terms and conditions mentioned by the bank or the NBFC (Non banking Financial Corporation) which provides the loan.

Business Loans

Professional loans are extended to self employed professionals such as doctors, chartered accountants and lawyers, based on their individual credit history. It also varies from bank to bank as to how much loan they can extend to that individual and the latter’s relationship with the particular bank. This loan is usually extended on personal rapport basis and in many instances some kind of collateral is taken in the form of mortgage of non-agricultural land, National Savings Certificates, Government Bonds, Bank’s Term Deposits, and Assignment of Life Insurance Policies etc. especially for loans extending over a certain threshold limit of say Rs 15-20 lacs. These loans are usually long term in nature and have payback tenure of about 5-7 years.

The documents that are required for the Loan

  • Detailed plan of the utilization of the money and the repayment methodology
  • Business expansion plan
  • Personal financial statements for the last 12 months including bank account statements, CIBIL score, etc.
  • Some form of collateral for a higher loan amount
  • Documents of the business, if it is established
  • Certification of incorporation
  • Self attested photocopy of PAN Card and address proof of the business
  • Ownership document
  • Last 2 year’s balance sheet and IT returns
  • Personal Credit References

Business Loans

Type of businesses that can apply for Trade Loans

Sole Proprietorship

Partnerships

Private Limited Companies

Trade Loans mainly comprise 3 types

Overdraft

Working Capital Loan

Term Loan

Term Loans

Term loans are the standard type of loan that can be for both personal and business purposes. The entire amount in a term loan is disbursed and is EMI (Equal Monthly Installments) based for a specific pre-defined tenure.
Term loans can be taken in foreign currency as well and is termed as Foreign Currency loans. Such loans are usually extended to exporters who deal in a different currency. This type of loan is cheaper than domestic loans as cost of capital employment is cheaper outside India. In Foreign Currency Loan, the loan amount is calculated in USD and converted and paid to the business in India as INR and is set off against USD payments received by the business.
The other variant is for domestic businesses in Domestic Currency Loan where the rate of Interest is pre-defined for a specific tenure and is EMI based as well.

The documents that are required for the Loan

    Business continuity proof for at least 2 years as:

  • Last 2 years’ bank statements with regular cash flows
  • Salary payment for 2 years. Utility Bills, etc.
  • Last 3 years audited Balance Sheet along with financial statements, Profit and Loss statement and ITR
  • Certificate of Incorporation/Registration or Partnership/Trust Deed, etc.
  • Self attested photocopy of Company PAN Card and Address Proof along with Board
  • Resolution and authorized list of signatories and MOA and AOA
  • KYC of the individual promoters of directors: Self Attested Photocopy of PAN Card and Address Proof and photograph

FAQ

There are a variety of business loans are available such as Term loans, SBA loans, Lines of credit, Equipment and vehicle financing, Short-term business loans.

How can I apply for a loan for my business?

You can apply online by lenders or offline as well. Other than that, by visiting banks, you can apply.

Documents may vary as per your business or loan requirement. However, the general documents are:

  • Proof of monthly or annual revenue.
  • Income proof
  • Pan Card, adhar card
  • Business tax ID number or tax returns
  • Business bank statement.
  • Business plan
  • Water bill, electricity bill.

Generally, the time depends on the lender you work with and the type of loan you applied. Rest, the common processing time is working 2 to 4 weeks.

Failing to make your loan payment as per the decided time is not good for your scores. Loan defaulting can have a serious effect on your business financing. As it has a negative impact on your credit scores as well as it creates a problem in your future financial loans.

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