Overview

Business loan is the primary unsecured type of funding, designed to meet the day-to-day business requirements of business owners or enterprises. Borrowers are not pressurized to submit any collateral or security to avail unsecured business loan.

Business loans can be used for business expansion purposes, manage cash flow, buy equipment/machinery, hire/train staff, purchase raw materials, upgrade inventory and much more.

There is no minimum loan limit criteria to borrow, whereas customers can avail collateral-free business loans up to Rs. 1 crore with flexible and customized repayment options.

Working Flow

If you take a Business loan from a bank or lender, you shall receive a lump sum amount that you need to repay in a defined period of time that is in form of EMIs, at an interest rate that can be fixed or floating rates. There is no minimum loan amount criteria to borrow and the maximum loan amount can go up to Rs. 1 crore, depending upon business requirements. The repayment tenure ranges between 12 months to 5 years. In some case the repayment tenure may exceed as per the sole discretion of the lender.

Key Features

Top Features of Business Loan:

• Interest Rate: 11.90% onwards
• Nature of Loan: Short- and Long-term, Working Capital, Secured and Unsecured Loans
• Minimum Loan Amount: No Limit to Borrow
• Maximum Loan Amount: Up to Rs. 1 crore (collateral-free loans), can exceed as per business requirements
• Repayment Period: From 12 months to 5 years
• Check and Compare from available business loan options at competitive interest rates.

Fee & Charges

The fees and charges of business loan vary from lender to lender and case to case. The fees and charges depends on the loan amount, interest rate and repayment tenure.

Disbural Process

After your loan application or loan is approved, bank will deposit the required loan amount in your bank account. The time duration of loan processing and disbursal shall vary from lender to lender.

Business Loan Interest Rates

Business loan interest rate starts from 11.90% onwards which also depends on the eligibility of the applicant:

Eligibiity Criteria

Below mentioned are the eligibility criteria for business loan:

• Age Criteria: Minimum 18 years at time of loan application & 65 years at time of loan maturity.
• Indian Citizen with no criminal background
• Applicant with good credit score and no past loan defaults, if any
• Fees & Charges, Income, Business Turnover, Operational History, Business Vintage, Credit score and Profitability Criteria shall be defined by the respective financial institution

  Some entities that can avail business loan:

  • Individuals
  • Startup Enterprises
  • MSMEsArtisans, Retailers, Manufacturers and Traders
  • Private and Public Limited Companies
  • Sole Proprietorship Firms, Partnerships, Limited Liability Partnerships and Large Enterprises engaged
  • only in Manufacturing, Trading or Services sectors
  • NGOs, Co-operative Societies and Trusts
  • Self-employed individuals / Professionals - CAs, Doctors, Architects, Company Secretaries, Allopathic Doctors, Designers, etc.

  Eligibility Criteria for Salaried Applicant

• Age Criteria: Minimum 18 years and Maximum 65 years
• Indian Citizen with no criminal records
• Applicant with no previous loan defaults with any bank
• Salaried Applicant must provide below mentioned documents at time of loan application along with KYC documents of applicant and co-applicant or partners:
• Minimum monthly salary: As per bank’s discretion
• Last 6 months’ salary slips
• Last 1 year
• IT Office ID card
• Appointment and offer letter from current employer

Eligibility Criteria for Self Employed Applicant

• Age Criteria: Minimum 21 years and Maximum 65 years
• Business existence for at least 1 year
• Minimum Annual Turnover: Depends on lender
• Indian Citizen with no criminal records
• Applicant with no previous loan defaults with any bank
• Salaried Applicant must provide below mentioned documents at time of loan application along with KYC documents of applicant and co-applicant or partners:
• Last 12 months’ bank statement
• Last 1 year ITR, GST returns and Sales Tax statement
• Last 1-year P&L statement – All documents to be audited by CA
• Copy of Registrations, Licenses and Permissions

How to Apply?

Below mentioned is the step-wise business loan verification process:

• Step 1: Visit servzone.in to check and compare from all the business loan options offered by leading financial institutions.
• Step 2: Pick the deal that suits your business requirements by just filling the basic details like your name, mobile number, residence, loan amount, email address, annual turnover & profit, etc.
• Step 3: After submitting the details, paisabazaar's customer care professional will contact you to verify the submitted details and to proceed with the discussion on the chosen loan deal.
• Step 4: Your business loan application will be sent to respective bank for further verification and then the bank’s representative will further contact you to proceed with loan formalities.
• Step 5: After your loan application is approved, within defined working days the approved loan amount shall get disbursed in your mentioned bank account.

Factors Affecting Business Loan

• Age Criteria:From 18 years - 65 years
• Nature of Business: Enterprise engaged in only Services, Trading & Manufacturing Sectors
• Turnover: Depends on lender
• Business Vintage: Minimum 2 years
• Financial History: Good and Stable Financial Past
• Source of Income:All types of money earning sources
• CIBIL Score:700 and above
• Loan Defaults:No previous loan defaults, if any
• Ownership:Applicant should own either a Home/ Office/ Shop

Special Income For Women Enterpreneurs

Some of the popular loan schemes for women entrepreneurs are as follows:

• Mahila Udyam Nidhi Scheme
• Mahila Samridhi Yojana
• Cent Kalyani from Central Bank of India
• Stree Shakti Package from State Bank of India
• Shringaar and Annapurna from Bhartiya Mahila Bank
• Dena Shakti Scheme from Dena BankUdyogini Scheme

Required Documnent For Business Loan

Checklist of documents required for business loan:

• Recent Passport-sized Photographs
• Identity Proof - PAN card, Aadhaar card, Valid passport, Voter's ID card, Driving License
• Address Proof - Voter's ID card, Aadhar card, Passport, Driving license,
• Utility bill, Water Bill, Electricity Bill
• Business Address Proof
• Proof of business existence for last 3 years
• Last 6 months' bank statement
• Last 3 years’ Income Tax Return (ITR)Balance sheet and Profit & Loss account statement
• Financial documents audited/attested/signed by Certified CACopy of Trade License
• Sales Tax CertificateCertified Copy of Partnership DeedGST Registration Certificate
• Proof of ownership of the possessions used for business activities

Uses Of Business Loan

You can use business loans for various purposes, as mentioned below:

• For business expansion or relocation
• To meet working capital requirements
• Enhance business cash flowTo purchase land or space for business operations
• To purchase equipment/machinery/raw materials
• To stock up inventoryTo pay rent/salaries/hire employees/staff training, etc.
• Scale-up operations or to upgrade technology
• New product or technology setup or installation
• Office premises’ renovation

Type of Business Loan

Term Loan

Currently many types of term loans are available, such as short-term loan, long-term loan and other small business loans. An entrepreneur can avail these loans according to his/her requirements and economical position. Mainly the loan tenure for a short term loan is 12 months and for long-term loan it goes up to 5 years.

Term loans are divided into two parts, unsecured business loans and secured business loans. In secured loans, the collateral or security can be a certain property, machinery or a business ground and they will usually possess lower interest rates as compared to an unsecured one. Most of the business loans are unsecured loans and do not require any collateral or security to be submitted to banks or NBFCs.

Working Capital LoanWorking Capital Loans are are used to overcome the day-to-day financial requirements of enterprises. The daily expenditure of enterprises include paying-off salaries, buying raw materials, paying rent, undertaking trainings, etc.

MUDRA Loan Under PMMY Micro Units Development and Refinance Agency (MUDRA) loan is a funding provided by most of the leading banks to Micro, Small and Medium Enterprises (MSMEs) nationwide. Under the Pradhan Mantri MUDRA Yojana, loans of minimum Rs. 50,000 and maximum of Rs. 10 lakh are provided to start an enterprise or an SME unit. Through the Mudra Loan Yojana, the Government wants to ensure that proper funding is provided to first-time entrepreneurs or existing business owners.

PMMY is a scheme launched by Government of India to offer funds up to Rs. 10 lakh to non-farm small/micro enterprises and non-corporate companies. Mudra loan scheme is divided into three categories named as Shishu, Kishore & Tarun wherein these loans are offered by Private Sector Banks, Public Sector Banks, Regional Rural Banks (RRBs), etc.

Loans for Self-employed Entrepreneurs

This is the most popular category among all as the loans for self-employed entrepreneurs are taken in large numbers. The loan amount can range anywhere between Rs. 50,000 being the minimum and can reach up to 10 crore. The interest rate offered depends on the financial history of the applicant and is decided by the lenders as per their discretion.

Stand-Up India Stand-up India scheme was introduced by Government of India to provide funding to people who come under SC/ST category and women entrepreneurs. The primary purpose of this scheme is to help banks in offering loans between Rs. 10 lakh and Rs. 1 crore to at least one SC/ST borrower and at least one women entrepreneur per bank branch in enabling them to set-up their own enterprise.

Startup India Startup India Scheme is an initiative by the Government of India that offers financing and handholding support to Startup entities for growth and expansion. Additional key functions include promotion of Startups, wealth creation and employment generation. To avail benefits of government schemes, an entity needs to be recognized as a Startup by applying on Startup India Mobile App/portal and obtaining the certificate of recognition.

Bill-Invoice Discounting
Invoice discounting is a financial instrument offered by banks and NBFCs. Bill discounting is a source of working capital finance for the seller of goods on credit. it is a discount which, a financial institution takes from a seller’s customer. Through the payment being made by letter of credit, buyer has the option of buying goods from the seller. Bills that come under bill discounting are termed as ‘bills of exchange’.

Letter of Credit
Letter of credit is a payment instrument used mainly in international trade in which bank provides monetary guarantee to enterprises which deal in import and export of goods. Letter of credit is used for both import and export of goods. Enterprises doing businesses overseas have to deal with unknown suppliers and they require assurance of payment before performing any transaction. Therefore, letter of credit is important to provide payment assurance to the suppliers or exporters.

Point of SalePoint of Sale Loan is a type of funding wherein merchants offer their customers some financial assistance at point of their purchase. This funding is provided in order to assist their customers in buying a product or service from their shop. Business owners, enterprises, MSMEs, entrepreneurs, retailers can avail Loan against POS machines to start a new business or to manage their existing businesses. Point of Sale Loan is also termed as Merchant Cash Advance in which the loan amount depends on business volume generated via POS terminals.

Overdraft Loan
An overdraft means overdrawing money from ones’ current/savings account. In simpler words, an account holder takes out more money that has been deposited in the account. An agreed rate of interest will be charged, if the overdrawn amount is within the limits of a preceding agreement.

Some facts

Which bank is best for home loan?
A. Some of the most popular banks offering home loans in India are HDFC Bank, SBI, PNB, ICICI Bank, Bank of Baroda, Axis Bank and Canara Bank. However, the best home loan for you would be the one that matches your needs. Therefore, to get the best bank for home loan first analyse your requirements. Also, when comparing home loan offers don’t jump for the offer that offers lowest interest rate, rather check on the entire deal. Besides the interest rate, pay attention to other parameters such as loan repayment and prepayment policies, processing fees, etc.

Are there any tax benefits of a home loan?
A.Yes. Both the loan principal amount and the interest paid towards loan repayments provide tax benefits under Section 80C`, Section 24(b) and Section 80EE of the IT Act respectively.

Can I get a home loan for the entire property value?
A.No. Banks usually keep a 20% margin when providing individuals with a home loan. This means that the lender may agree to provide you with 80% of the property value as a home loan, while you will have to shell out the rest 20% by yourself. In some cases, the lender can agree to provide you with up to 90% of the property value as a home loan.

Who can co-sign a home loan with me? Can my friend co-sign a home loan for a flat?
A.Your family members like father, mother, siblings, etc. can co-sign a home loan with you. Other than that your spouse or adult children can also be co-signatories in case you are applying for a home loan. In India, as per existing rules, your friend cannot co-sign a loan as he/she is not a blood relative or otherwise related to you.

How many people can co-sign a home loan with me?A.At present, up to 7 people can co-sign a home with the primary applicant. However, all of them need to be blood- relatives of the family member.

What are the reasons for home loan rejection?

• Factors that can play a crucial role in home loan rejection are mentioned below:
• Bad or low credit score
• Incorrect personal details in credit report
• Rejection of loan by other banks
• Unstable income
• Age factor
• Location of the property
• Poor repayment capabilities

How to avoid home loan rejection?
A. The below mentioned steps can prove to be beneficial to avoid home loan rejection:
Credit Score: It is advisable to maintain a credit score of 750 and above to have a good chance of your application being approved. Banks & Financial Institutions rely on credit score before approving your home loan to check your credibility and loan repayment history. So, you should always maintain your credit score to avoid home loan rejection.

Insufficient Income: Banks and financial institutions look into your monthly income to see if you will be able to repay your equated monthly instalments (EMIs) or not. It is always advisable to take a home loan with EMI not more than 40% of your monthly income. Lenders have certain minimum income and employment requirements which play an important role in the loan-approval process. Make sure that you meet all the requirements before you apply for a home loan.

Too many applications for home loan in a short span of time: If you apply for a home loan from different lenders, it indicates banks and financial institutions that you are short of credit and need to apply to several sources to fill the gap. Lenders think that you will not be able to repay your loan, which leads to rejection of your home loan application.

Existing loan portfolio: Currently, if you have a number of loans to repay, then your lender might think that you will not be able to take on another EMI on your existing income, which will lead to your home loan rejection. So, it is better to apply for a home loan once you have paid off a few of your other loans to reduce your EMI burden.

How to improve home loan eligibility?

Potential home loan borrowers can enhance their home loan eligibility in the following ways:

Improve your credit score: A good credit score improves your chances of loan approval so that you can avail a home loan at lower interest rates and better terms. Paying your bills on time and maintaining credit utilisation ratio below 40% are some of the ways to improve and maintain your credit score.

Pay higher down payments: Financial institutions lend 75-90% of the property value. This implies that the remaining 10-25% of the property value has to be contributed as down-payment by borrowers. To increase your home loan eligibility, make higher contribution towards your home loan down payment. Doing so will lower your LTV ratio; thus, improving your home loan eligibility.

Add an earning co-applicant: Add an earning co-applicant with good credit history and satisfactory repayment capacity to increase your home loan eligibility. Joint home loan might even help you get higher loan amount and concession on your home loan interest rates (if the co-applicant is a woman).

How home loan EMI is calculated?
A. Equated Monthly Instalment (EMI) is the amount that you repay each month against your home loan principal amount and its interest amount. So, while calculating the home loan EMI, both the principal amount and the accrued interest on the loan is taken into consideration.

Are there any prepayment charges in case of a home loan?
A. In case of a floating rate home loan, lenders don't charge a pre-payment penalty as per RBI directives however a penalty may be applied in case of prepayment of a fixed-rate home loan.

What is home loan balance transfer?
A. Home loan balance transfer is a facility that allows home loan borrowers to transfer their outstanding home loan to a new lender for lower interest rate or better loan terms. Almost all lenders offer the home loan transfer facility to their customers. Paying your loan EMIs regularly is one of the factors that help you enjoy loan transfer facility. But before going for home loan balance transfer, carry out a cost-benefit analysis. Calculate the difference between the interest rates offered by the two lenders, the amount of the loan left unpaid and the remaining tenure.

Home loan balance transfer is not an ideal option if the outstanding loan amount is low, if only a few repayment years are remaining or the difference in the interest rate is leading to negligible savings. Also, do not forget to consider processing fee charges, which the new lender would be charging for balance transfer.