Business loans can be the driving force for several business entities, be it a sole proprietor, partnership, a private company or a public company, etc. Many banks and NBFCs advance business loans as financial assistance to running businesses with different terms and conditions based on the organization's reputation. The loans can be against collateral or without security but against business turnovers or receivables on both long and short term periods. These loans are also called commercial loans and are available without much difficulty from several banks.
If you are looking for a business loan, you must understand some of its features as given below:
Interest - In an unsecured business loan, the interest rate is usually fixed throughout the tenure once it is determined, making it easier to plan their budgets and plan their financials appropriately.
Amount of Loan: Many banks provide up to Rs. Fifty lakhs and some even beyond One Crore.
Collateral/Security: For unsecured business loans, usually, no collateral is asked for as the financier assesses the credit scores, the income and expenditure flow, the profitability of the company, and then sanctions the loan accordingly.
Less Paperwork - While there is a little paperwork involved, it is convenient nevertheless, and one can do it easily on any bank's website. An aggregator like Loanz99.com also can help in the application process.
Pre Sanction Processing - Once the financial institution receives the application for a loan. Usually, the process is completed quickly. All documents submitted are verified, and the applicant is either met by a bank representative or requested to meet the bank manager. Following the meeting, the sanction and disbursal of the loan are done.
Tenure for Repayment - Businesses can choose a comfortable tenure based on their financials and repayment capacity. Usually, the terms, though, are fixed, can also be adjusted later. Thus, business loans are flexible and comfortable for business entities.
Method of Repayment - As per the bank's agreement, the repayment method can be either in EMIs or on a lump sum basis. Both prepayments of the loan and foreclosure can also be done after the repayment is initiated.
Business Loans are available in the following categories:
Business entities such as a sole proprietor business, a partnership firm, or a private limited company can avail of a Trade Loan. These are provided to support a business's continuation or for any such particular purposes, the company may so determine.
Loan towards Working Capital:
A specific loan amount is advanced to allow a business, meet its cash needs and does not require collateral. Only the amount that is utilized is considered for interest, not the amount sanctioned. The purpose of the amount sanctioned must be purely for the purpose agreed, and banks may take full control of the company's cash flow, debts, receivables, etc. The loan can also be revoked if the intended purpose is not served and cash diverted for something else. Business loans are readily available because of the control the bank has over the business and is a controlling factor in the company's financial administration.
Banks can consider advancing an amount as an overdraft, which can be based both with and without collateral. Factors such as credit history, cash flow, relationship with the bank, the scope of the business and its profitability, etc. will determine the facility and the overdraft limit. Interest is charged on the amount utilized only, and the monies from the OD can be used without restriction or interference from the financial institution.
Available for personal and business needs, a Term Loan is more or less like a personal loan which can be repaid in EMIs over a fixed period. Usually, the maximum loan tenure is five years.
This loan type is extended to self-employed professionals like Doctors, Chartered Accountants, Lawyers, etc. The loan is provided based on their credit history, and the maximum amount varies from bank to bank. The collateral requirement is mandatory in such loans, as mostly it is advanced based on the rapport of the individual and income proof. However, if the required amount is high, collateral may be asked for, which can be in the form of LIC policies, Bank deposits, agricultural lands, Government Bonds, etc.
Documents that are important for a professional loan include a Professional Certificate, a full year's bank statement, three years ITRs, the PAN Card, and a brief plan of the amount planned to be utilized by the professional.
The following aspects are integral to a Business Loan:
- A new or a running business is considered for securing a business loan. But to obtain an unsecured business loan, three-year business history is crucial.
- A good credit score of above 720 is essential for getting a business loan.
- Business loans are usually available from 12-14% interest.
- Unsecured businesses must have at least a turnover of Rs. Fifty lakhs, but some banks consider even Rs. 12 Lakhs based on the relationship the business shares with the bank.
- Business loans usually take around 12-15 days for complete processing and disbursal.
- Business loans are sanctioned mostly for meeting the running or expansion costs of a business and are not given capital loans to start a business. To start a company with a loan, one can opt for a project loan or a personal loan or loan against security.
- As with all loans, regular repayment is considered a healthy sign for one's creditworthiness, and defaults will significantly work against building a good relationship with a bank.
- Though a low credit score weakens a fresh loan proposal; some banks still do their due diligence on a candidate's history. And could offer a new loan at a higher interest and more sterner conditions, such as requiring a co-applicant or new collaterals. In the case of a default in repayment here, even the co-applicant's creditworthiness gets affected.
|Bank||Interest Rates||Processing Fees||Tenure||Fore Closure||Process Time|
|HDFC Bank||16% onwards||Upto 2.50% of loan amount (Min. Rs. 2,359 – Max. Rs. 88,500)||12 months – 48 months||No pre-payment permitted until repayment of 6 EMIs||2 DAYS|
|ICICI Bank||18% p.a. onwards||Up to 2% (plus applicable taxes) of the loan amount||7 years||To be charged as per the termed and conditions mentioned in the sanction letter||2 DAYS|
|Axis Bank||15% onwards||Up to 1.75% of loan amount + applicable taxes||Nil||3 DAYS|
|Indus Ind Bank||12% to 23%||0.5%- 2%||5 Years||4% post 12 EMI clearance||3-4 working Days|
|Standard Chartered||17.25% p.a. onwards||2% of the amount disbursed||60 months||5% of outstanding Principal||2 DAYS|
|Yes Bank||13.25% to 19.99% (Fixed Rate)||Up to 2.50% of the loan amount, min. of Rs. 999||12 months to 60 months||Nil, Until 6 months||2DAYS|
|Kotak Mahindra Bank||15% onwards||2% of the loan amount + GST||Up to 48 months||Not available for business loans||3 DAYS|
|IDFC First||20% onwards||Up to 3.5% of the loan amount||Min. 12 months – Max. 5 years||5% of Principal loan outstanding, at the time of loan closure for Simple Business Loan||4 DAYS|
|Citibank||8% onwards||Up to 2% of the sanctioned loan amount||5 YEARS||Up to 2% of the outstanding amount|
|SBI||11.20%||From 2% to 3%||From 12 months to 48 months||Allowed after 6 EMI's, 3%||3 DAYS|
|Tata Capital||18% onwards||Up to 3.5% of the loan amount||Min. 12 months & Max. 36 months||4.5% of the principal outstanding on the ongoing business loan||3 DAYS|
|Fullerton India||17% onwards||6.5% of the loan amount||From 12 months to 60 months||0 to 6 EMIs fully paid- Not allowed
7 to 17 EMIs fully paid – 7%
18 to 23 EMIs fully paid – 5%
24 to 35 EMIs fully paid – 3%
36 or more EMIs fully paid – 0%
|Bajaj Finserv||18.00%||Upto 2% of loan amount||From 12 months to 48 months||Allowed after 1 EMI's, 4%||4 DAYS|