How to get business loan?

What is a business loan? Taking a loan from a bank or NBFC to fulfil any kind of business need is called business loan. Therefore, a salaried person can’t take a business loan. Even a business owner takes a loan from a bank or NBFC for personal purposes, and then it will be a personal loan. Generally, business owners take a business loan to fulfil purposes like business expansions, purchase plants, and machinery, invest in infrastructure maintain overhead cost, inventory, etc. How to get a business loan? To get your answer you have to know what the types of business loans are. What are the documents required for a business loan? What is the eligibility of the business loan?

Types of Business loan:

There are two types of business loans. One is fund based another is non-fund based business loan.

Fund based Business Loan:

A fund based credit limit is one where the bank gives you a loan or facility from which you can physically draw or utilize money. Most of the businessman requires fund based loan. Fund based loans are following-

      1. Term loan:

The term loan is the most popular. The loan is given for a specified time period or tenor.  It can be short term or long term. Term loans can be secured or unsecured both. This loan is given for the period for 5 years to 15 years.

     2. Unsecured Business Loan:

An unsecured loan is one of the most popular loans towards business owners. Most the businessman tries to take an unsecured business loan in the first few years of their business. This loan can be for 12 months to 5 years. One can take this loan from rupees 50000 to 2 corers depend upon his business profile. Most of the banks and NBFCs provide this loan to checking customer’s creditworthiness. The rate of interest is very high in unsecured business loans.

      3. Commercial property purchase loan:

A businessman can buy a factory, office, or warehouse to expand his business. He can take a business loan to buy this kind of property. This kind of loan is for a long period of time. Therefore it is also called long term loan. This kind of business loan interest rate is very low than others.

      4. Commercial Vehicle loan and Equipment finance:

You can buy a commercial vehicle or plant and machinery for your business. This is a short term loan. This kind of loan tenor can be 3 years to 5 years.

      5. Working Capital Loan:

Every business needs working capital. Working capital is a fund which utilizes to manage the day to day business expenditure. So you can take this kind of loan to meet your business working capital need. This is a very short term loan. There are many types of working capital loans available in the market to fulfil different types of business needs.

      6. Overdraft Facility:

Usually, a bank can offer an overdraft facility to a businessman who maintains a good average balance and regular transection in his current account. A limit set for this loan. Example – A customer maintains two lakhs average balance in every month. Bank can provide him rupees 50000 over-limit in his account. That means the person can withdraw up to rupees 50000 after withdrawn all deposited amounts. He has to pay interest on the withdrawal amount. The interesting point is he will pay the interest for the period he holds the money. Once the deposits money to his account then he no needs to pay the interest.

Some other types of overdraft facilities are available in the bank now. A businessman can apply for a cash credit loan to the bank but in his business, no stock is maintained. In that case, the bank can offer him an overdraft loan. The overdraft loan is similar to cash credit but there are some differences. Customers will get a maximum of 60% to 70% overdraft limit on the basis of collateral security.

      7. Dropline OD:

This is also an overdraft facility. It becomes popular in many banks. It is also a term loan. There is a fixed tenor and the customer has to pay EMI. The customer has to provide collateral as security. But, the bank will provide an account like an overdraft facility. Interest will be charged on the withdrawal amount. Overdraft limit will reduce month on month basis. Here a customer can refill his overdraft limit after one year to request a bank. So this is a hybrid loan of term loan and overdraft facility.

      8. Cash Credit:

Cash credit is a working capital loan. You can take cash credit loan to fulfill your business day to day expenses. This is most preferable for the production unit where working capital blocked for a few months. Cash credit is provided for a very short period of time. Generally, Banks provide it for 12 months. Customers can renew it after 12 months. The rate of interest is very low. The most important benefit is a customer has to pay interest on the withdrawal amount of loan not on the entire cash credit limit. One more important feature is, customers can get loans up to 90% of their collateral value. Read more…

      9. Pradhan Mantri Mudra Yojana:

PMMY is a loan scheme launched by the Government of India to offer funds to small and micro-enterprises. A person who is starting a business can apply for a loan in PMMY scheme. The loan offers public sector and private sector bank both. A most important feature of this loan is the borrower will get subsidy on the loan from the government. No collateral security is required.

      10. Stand up India:

Stand up India scheme is introduced by the Government of India also. The applicant has to be under SC/ST category and at least one applicant has to be a woman. A Start-up business can apply under this scheme. The loan can be provided up to 1 crore.

      11. CGTSME:

CGSTSME loan is introduced by the government. This loan is very popular among borrowers. Small and Medium-size businessmen can apply for this loan. This loan feature is like a normal cash credit loan. A businessman can apply for more than 1 corer loan under this scheme. Any kind of production unit can get this kind of loan easily. You need to provide documents like cash credit. But you no need to provide any collateral security whatever the loan amount.

     12. Project loan:

A project loan is provided to that person who is building a new project. The business owner has to submit a project report along with all other documents. Generally, the project loan amount is higher than any other loan.

You can apply for a few crores of the amount as a project loan. Huge documentation is required for this kind of loan. Bank checks entrepreneur knowledge and experience in a particular business where he asking for a project loan. Bank takes as collateral security of the total project.

      13. Loan against Security:  

You can take a loan against fixed deposit, mutual fund, equity Shares, bonds, insurance policy, etc. However, all types of shares and mutual funds can’t pledge. It depends upon the bank’s policy.

      14. Invoice Financing:

Invoice financing is a financial instrument offered by banks and NBFCs. Invoice financing is a source of capital for the seller of goods on credit. It is a discount which a lender takes from the seller’s customer. You can enjoy up to 80% of the outstanding invoice.

      15. Merchant Cash Advance:

You can take merchant cash on the basis of your credit card and debit card sales. However, this kind of loan is very expensive.

      16. Packing Credit:

packing credit limit is provided to an exporter for financing the purchase, manufacture, or processing and packing of goods prior to shipment. This is a very short term loan. Period of financing based on the export cycle. The maximum time limit can be up to 6 months.

Non-Fund based loan:

Bank does not provide physical money but gives assurance to a third party in a non-fund based credit limit. Example– Bank Guarantee and Letter of Credit.

     1. Bank Guarantee:

A business owner can avail of this pre-approved secured loan by offering a residential, commercial, or industrial property as collateral. A bank guarantee is a promise from a bank or other lending institution if a particular borrower defaults on payment, the bank will cover the loss. A bank guarantee brings confidence to commerce.

     2. Letter of Credit:

Letter of credit is a payment instrument used mainly in international trade in which bank provides a monitory guarantee to a company which deals in import and export of goods. A letter of credit is used for both import and export of goods. A company doing business overseas has to deal with unknown suppliers and it requires assurance of payment before performing any transaction. Therefore a letter of credit is important to provide payment assurance to the suppliers or exporters. Read more…

Business Loan eligibility:

Business loans are provided to business owners or entrepreneurs to meet their capital requirements. You have to fulfill some eligibility criteria to get a business loan from any credit institution. These are the following-

• The loan can get a business owner, self-employed professional, and company.
• A minimum of three years of business vintage is required to take a loan from any reputed bank. Although, few credit institutions can provide loans on less than three years of business.
• The last two years ITR along with profit and loss account and balance are required to take the business in favourable conditions. Few lenders can provide a loan with a year IT file or no IT file.
• Applicant age should be between 25 years to 65 years. In the case of company one partner or director, age should be above age bracket. Other partner or director age can be less than or higher than this age bracket.
• A credit institution may offer loans to only certain cities or tows. Specially, an unsecured business loan is provided within a geo limit.
• Self-employed professionals required valid certificates to get business loans.

What are the documents required for a business loan?

     Documents of Proprietorship Company:

     KYC Documents:

1. Pan card & Aadhaar card and passport size photo (Mandatory)
2. Address Proof: (any of the below)

• Voter card
• Driving license
• Aaddhaar card
• Electric bill
• Telephone bill (Land phone only)
• Passport etc.

3. Ownership proof either office or resident (latest electricity bill or property tax)

     Business proof:

• Trade license for the last three years.
• Professional Tax registration
• GST registration certificate

     Financial and Income proof:

• 2 Years of IT files. It includes ITR, computation, P&L account, balance sheet, 3CA & 3CD (in case of audited file)
• All existing loan sanction letter (if any)
• Six months or one-year current account statements.
• One year cash credit account statement (in case of take over).
• GST Return for last four quarters
• Estimated and projected balance sheet and profit and loss account. (In case of a working capital loan or Project loan)
• Work order copy (6 months old and in hand) (if any)

      Property documents:

       a)  Deed
       b) Prior deed
       c) Mutation certificate
       d) Sanction plan
       e) Conversion certificate
       f) latest property tax receipt

Property documents are required in secured business loan. It is not required in unsecured business loans or collateral-free loans.

      Documents for Partnership Company:

      KYC Documents:

1. Pan card & Aadhaar card and passport size photo for all partners (Mandatory)
2. Address Proof of all partners: (any of the below)

• Voter card
• Driving license
• Addhaar card
• Electric bill
• Telephone bill (Land phone only)
• Passport etc.

6. Ownership proof either office or resident (latest electricity bill or property tax)

     Business proof:

• PAN Card of Partnership Company
• Trade license for the last three years.
• Professional Tax registration
• GST registration certificate
• Partnership Deed

     Financial and Income proof:

• 2 Years IT files of the company. It includes ITR, computation, P&L account, balance sheet, 3CA & 3CD (in case of audited file)
• All existing loan sanction letter (if any)
• Six months or one-year current account statements.
• One year cash credit account statement (in case of take over).
• GST Return for last four quarters
• Estimated and projected balance sheet and profit and loss account. (In case of a working capital loan or Project loan)
• Work order copy (6 months old and in hand) (if any)

       Property documents:

       a)  Deed
       b) Prior deed
       c) Mutation certificate
       d) Sanction plan
       e) Conversion certificate
       f) latest property tax receipt

Property documents are required in secured business loan. It is not required in an unsecured business loan or collateral-free loan.

      Documents for Private Ltd. or Limited Company:

      KYC Documents:

1. Pan card & Aadhaar card and passport size photo for all directors (Mandatory)
2. Address Proof of all directors: (any of the below)

• Voter card
• Driving license
• Addhaar card
• Electric bill
• Telephone bill (Land phone only)
• Passport etc.

1. Ownership proof either office or resident (latest electricity bill or property tax)

Business proof:

• PAN Card of Company
• Trade license for the last three years.
• Professional Tax registration
• GST registration certificate
• MOA / AOA of the company

Financial and Income proof:

• 2 Years IT files of the company. It includes ITR, computation, P&L account, balance sheet, 3CA & 3CD (Must be audited file)
• All existing loan sanction letter (if any)
• Six months or one-year current account statements.
• One year cash credit account statement (in case of take over).
• GST Return for last one year
• Estimated and projected balance sheet and profit and loss account. (In case of a working capital loan or Project loan)
• Work order copy (6 months old and in hand) (if any)

      Property documents:

       a)  Deed
       b) Prior deed
       c) Mutation certificate
       d) Sanction plan
       e) Conversion certificate
       f) latest property tax receipt

### Property documents are required in secured business loan. It is not required in an unsecured business loan or collateral-free loan.

$$$ Above basic documents are required for a business loan. Some banks may ask for customer-specific additional documents. Some credit institutions may ask very fewer documents for short term unsecured business loans.

Rate of Interest:

Business loan interest rate may vary from bank to bank. An unsecured business loan interest rate is higher than secured business loans comparatively.  Unsecured business loans are available in the market between 14% to 22% interest rate.

Secured business loan interest rates may be offered 8.5% to 15% depending upon the bank MCLR. Most of the bank charges a different interest rate on the basis of the customer profile.

They can offer lower interest rates to good profile customers. You can check the interest rate from websites.  Some websites provide a rate of interest of all the banks and NBFCs like bankbazar.com, paisabazr.com, etc.

You can visit to check the interest rate from banks’ websites. But the best option to know the rate of interest is direct calling to banks or credit institutions. The bank changes its interest rate frequently depending upon the MCLR and repo rate.

Things to remember before applying for the loan:

•   Before applying a business loan do assess how much loan you required. You must not borrow more than what you require because repayment may hassle.
• You should research about types of business loan. Many lenders provide different types of business loans. Their interest rate, feature, interest rate, tenor, and terms are different. So you should know which product will be suitable for your business.
• You should know your present credit score. Most of the banks expect 750 plus CIBIL score to offer their loan. Few lenders can provide loans below 750 CIBIL scores. If your CIBIL score is less than 750 then you can do two things. First, you know why your CIBIL score is less than 750 and is there any possibility to increase the credit score? If you can increase your credit score then you may wait to apply to your proffered bank and get the most suitable business loan. Second, if you in a hurry, then you search those lenders who will provide you loan below 750 CIBIL scores.
• A business owner should understand the repayment terms. In most cases, lenders take equated monthly installment (EMI). You must calculate your repayment capacity because you can’t fail any EMI. If you do so your credit score will decrease.
• Check the charges before applying for a loan. Every credit institution takes different types of fees and charges apart from the interest rates.
• They are processing fee, pre closer charges documentation charges, part payment fees, default fees, etc. Make sure about the charges and understand how they affect the cost of your loan.

How to apply for a business loan?

How to get a business loan? Almost all banks and lots of NBFCs offer business loans. You can easily apply for business loans online. You can visit directly the lending company’s site and fill up the application form.

Some website has documents upload option. After that executive of the company will call you and complete all formalities. If you are eligible for the loan you will get the money within 24 hours to 74 hours in case of an unsecured business loan.

If you apply for a secured loan then it may take a longer time to get money. If your all documents are ok then you will get a loan within 15 days.

 There are lots of marketing agencies. They also have an online application facility. You can apply to their site also. They can try to several companies for your loan.

If you have time you can visit the bank directly along with all documents. Bank executive or loan officer will help you to complete the application and they can advise you to complete all documents as per bank requirement.

There are few loan consultants and DSA of the bank available in the market. They can help you to get the loan easily. You can contact them also.

Our recommendation- Always searches friends or relatives who work in the credit institution or get a business loan from financial institutions. Ask them where and how you can apply for a loan. They may provide you the reference.

Because direct application online may reduce your time but rejection rate can be high. An experienced loan officer or manager or a loan consultant can help you a lot. Your application can be rejected if any of your documents are not ready or prepared correctly.

Those persons will aware of you regarding your incomplete documents and they can advise you to read the documents properly. Thus you will get the loan successfully.

Popular business loan provider in Kolkata:

• ICICI Bank
• HDFC Bank
• Asix Bank
• Bank of Baroda
• Kotak Bank
• Fullerton India
• Tata Capital Finance
• Bajaj Finance
• Federal Bank
• State Bank of India
• HDB Financial Services
• Yes Bank
• Lendingkart Finance
• NeoGrowth Finance

Please let us know to comment below if you like to anything more regarding the business loan. You can write in the comment box if you see anything wrong here.

Read also-

• Cash Credit loan 
• Why should you appoint a Business Loan consultant for your loan?
• Business loan agent in Kolkata
• Types of Working Capital Loan