Overview Business Loan

A business loan is a loan taken by the borrower with the intention of using it for setting up a new business or expanding an existing way; it is essentially capital for business. Like any other loan, when loan for business is taken the borrower agrees to pay back the borrowed amount along with interest at agreed rate within the stipulated time.

Working capital,Term loans,Overdrafts and start-up loans


Types of Business Loan:

In order to understand what business finance is we need to know a little about different types of business loans:


Term Loans:

Terms loans can be short term or long term and intermediate loans. The term can vary from 3 years for a short term loan to 10-15 years for a long term. These loans are usually taken to finance expansion or set up a new unit.


Working Capital Loans:

These loans are required by the business to meet its day to day financial requirements. Getting timely access to working capital is important for any business. Different modes may be used to finance working capital needs.


Overdrafts:

An overdraft is a temporary loan; the account holder overdraws from his current account as per agreed terms and conditions. Higher rates are applicable when the overdraft exceeds the limit.


Start-up Loans:

Some financial institutions may have special provision for lending to start ups. The lender has to like the business plan and idea and may ask for some assets as collateral. In such a situation the banks will assess the credit history of the promoter of the business, his back ground, assets and liabilities, educational background, the business plan and its feasibility. There are special schemes and programmes to fund ventures by those new to the business.

Depending on the business loan requirements the applicant can decide which type of loan to take; the banks will also assess the requirement and then decide the amount of loan and its terms. Loans can also be short or long term, secured or unsecured and professional or trade loans.

ligibility criteria fixed by the FI may include minimum and maximum age, minimum turnover, years in business, profit for last 'X' years, minimum annual income etc. In case of a new business the eligibility criteria and required document list might vary a little.

Professional loans are given to self employed professionals like CAs, doctors, lawyers, designers etc. The lender takes a detailed plan both about repayment and utilization of money, usually collateral is required for such loans.

Assessing the requirement accurately and a sound business plan are cornerstones to getting and utilizing a business loan well.

Business Loan Interest Rate

Business loan Banks Interest Rates Processing Fee
Axis Bank Business Loans Hyderabad Axis Bank Business Loan 8.70% 1.50% to 2.00%
Kotak Mahindra Bank Business Loan Kotak Mahindra Bank Business Loan 16.00% Upto 2%
HDFC Bank Business Loan HDFC Bank Business Loan 15.65% Starting from 0.99%, Max 2.50%
Muthoot Finance Business Loan Muthoot Finance Business Loan 13.50% Upto 1.5%
Bank Of Baroda Business Loan Bank Of Baroda Business Loan 14.10% Upto 1%
Bank of Maharashtra Business Loan Bank of Maharashtra Business Loan 14.50% 1% of loan amount, Min Rs. 1,000
Central Bank of India Business Loan Central Bank of India Business Loan 11.50% 3.00%
Corporation Bank Business Loan Corporation Bank Business Loan 13.55% 1.5%
ICICI Bank Business Loan ICICI Bank Business Loan 16.49% Starting from 0.99%, Up to 2%
IDBI Bank Business Loan IDBI Bank Business Loan 13.00% 1%
Union Bank Of India Business Loan Union Bank Of India Business Loan 13.55% 1%
Oriental Bank of Commerce Business Loan Oriental Bank of Commerce Business Loan 11.40% 0.50% of Loan Amount
Punjab National Bank Business Loan Punjab National Bank Business Loan 12.65% 1.8% + taxes
State Bank of India Business Loan State Bank of India Business Loan 11.20% From 2% to 3%
United Bank of India Business Loan United Bank of India Business Loan 13.00% 1.15%
Syndicate Bank Business Loan Syndicate Bank Business Loan 12.65% 0.5%, Min Rs. 500
Dena Bank Business Loan Dena Bank Business Loan 10% 1%

Business Loan

Business Loan can be availed for all business purpose like working capital requirement, purchasing of fixed assets, capacity expansion/ modernization, technology up-gradation, Research and Development or any other short-term requirement

Businesses need ample amount of investment to fund expenditures related to expansion such as adding new lines to their existing products/services. In such a situation, business loans can come in handy as they provide much needed financial assistance to companies so that they can grow more competitive in the chosen markets. Like any other loan, a business loan is a debt which the company is obligated to pay back to the lender within a specific tenure according to the terms and conditions mentioned in the loan agreement. Start-up Business loans can be taken for a variety of essential requirements like starting up a new firm, business expansions, dealer and vendor financing etc.

The loan amount will depend on profit and years of business and cash flow Eligibility for business loan will vary from bank to bank and will depend on various factors. Your ability to repay the loan will be verified by the bank on the basis of your line of business, profitability, financial statements, etc.

A self-employed individuals / business owners in the age group of 21 to 65 years can apply for business loan. The annual turnover of the business will vary from bank to bank, The business needs to be in continuity for the last 3 years showing positive trends in turnover and profit for the last 2 years.

Business loans can be sanctioned for a fixed term (12-48 months) or may involve a revolving line of credit or they may be in the form of an overdraft facility.

Normally lender charges a fee of up to 2.5% of loan amount towards the processing of loan.
The lender may charge you a penalty for early closure of loan.

Document Checklist

The document required for processing of business loans are

  • PAN Card – For Company /Firm/ individual.
  • Proof of your identity: Copy of Aadhaar Card/Passport/Voter’s ID card/Pan Card/Driving License.
  • Proof of your address: Copy of Aadhaar Card/Passport/ Voter ID-Card/Driving License.
  • Bank Statement (latest 6 months)
  • Latest ITR along with computation of income, Balance sheet and Profit & Loss a/c for the last 2 years. Financial
  • should be CA Certified /Audited.
  • Proof of continuation (ITR/Trade license /Establishment /Sales Tax certificate)
  • Other Mandatory Documents (Sole Prop. Declaration Or Certified Copy of Partnership Deed, Certified true copy of
  • Memorandum & Articles of Association (certified by Director) & Board resolution (Original)

Some of the providers of business loan in India are State Bank of India (SBI), HSBC Bank, ICICI Bank, HDFC Bank, Fullerton India, Bajaj Finserv, etc.

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