Business Loan: Check steps to apply, eligibility and documents needed

Business owners often look for funds to expand their operations. Also, they may face the challenge of managing day-to-day business operations with limited resources, while ensuring growth.

The availability of funds could be of great support to small traders and business owners. Many banks and non-banking financial companies (NBFCs) provide loans specifically for businesses and such loans are known for business loans.

These loans can be availed for an existing business or for beginning a new business. Securing a business loan helps in hassle-free operations and future expansions.  Nowadays, borrowers can apply for a business loan online through a complete digital process. Digital platforms like Moneycontrol offer access to multiple loan options on their platforms. You can apply for loans up to Rs 15 lakhs through a 100% paperless process.

What is a business loan?

A business loan is a loan product provided by banks and NBFCs to business owners who need funds to grow their businesses. Business owners can use the funds for expenses such as paying the rent for their premises, paying the salaries of their employees, purchasing new equipment or for expanding their business geographically. However, it must be noted that business owners can only use the amount for business purposes and not for personal expenses.

Types of Business Loans

Business loans can be divided into different categories. Here’s a look at some of the categories of business loans generally offered by banks and NBFCs in India.

• Term Business Loans

Term Business Loans offer a predetermined amount of money for a fixed duration with clear repayment conditions.

• Working Capital Loans

These loans are availed by banks so that businesses can fund the day-to-day operations of their business. They enable businesses to handle fluctuations in cash flow and cover urgent operational costs.

• Commercial Business Loans

Commercial Business Loans are generally availed when a business owner decides to expand their business or scale their operational growth or undertake major acquisitions.

• Startup Loans

Startup Loans cater to the needs of new entrepreneurs as they can use these to fund the capital expenditure needs of their business without the need for an established credit history or assets for collateral.

• Equipment Financing

Equipment financing loans help capital intensive businesses in purchasing and upgrading crucial but expensive equipment. These loans are a strategic investment which enables businesses to leverage the latest technology.

• Loans under government schemes:
  Various loans for individuals, MSMEs, women entrepreneurs, and others engaged in trading, services, or manufacturing sectors are available via government schemes. Some of the top govt. loan schemes are: MSME Loan Scheme in 59 Minutes, Pradhan Mantri MUDRA Yojana (PMMY), National Small Industries Corporation, Credit-Linked Capital Subsidy Scheme, SIDBI Loan, Credit Guarantee Fund Scheme, Stand Up India loan scheme, etc.

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Documents required for Business Loan

Different financial institutions require you to submit various documents, however, here’s a look at some documents which are typically required for filing a business loan application:

• KYC documents such as identity proof and address proof of the business owner or partners


• PAN Card of the main borrower and all co-borrowers


• Bank statements for the past six months of the main operative business account


• Signed copy of standard terms (term loan facility)


• GST Registration


• Proof of business registration


• PAN Card and Aadhar Card copy of proprietor(s)


• Deed copy and company PAN Card copy if the business is registered as a partnership

Business Loan Approval Criteria

Banks and NBFCs analyse the ability of the business owner to repay the loan via various means such as credit score and business turnover. Here’s a look at some of the key conditions:

• At the time of applying for the loan, the business should have been operational for a period of at least two years. However, many lenders also allow loans for new businesses.


• The business loan can also be availed by self-employed people and other service providers such as doctors and Chartered Accountants.


• The business should not be registered as a charitable organisation, Non-Governmental Organisation (NGO) or trust.


• Applicants for business loans need to have a credit score of 700 and above.


• The business should not fall under any list of blacklisted categories.


• The location of the businesses’ office premises should not be on any negative list.

ALSO READ: How to Secure the Best Business Loan Interest Rate

Business Loan Tenures

Financial institutions offer loans for two types of tenures, long-term and short-term.

Short-Term Business Loans

Short-term Business Loans are generally borrowed to address immediate financial needs like day-to-day expenses, navigating cash-flow challenges and for capitalising on emerging opportunities such as demand and supply shortages.

Short term loans provide fast access to funds and have relatively simpler application processes. Typically short-term loans have a minimum tenure of 12-24 months.

Various businesses benefit from short-term loans. Businesses with fluctuating cash flow or with quick capital infusion often avail short-term loans.

Long-Term Business Loans

Long-term Business Loans are borrowed for an extended period of time. The repayment schedule of long-term business loans often spans several years. These loans help businesses in undertaking expansion, large investments or for expanding their operations.

Long-term loans offer ample time to businesses for repayment. Additionally they reduce the burden of hefty monthly instalments on the company. Businesses often avail such loans when they are aiming for gradual and sustainable growth.

Conclusion

It is generally advised that business owners should factor in details such as business goals, cash flow patterns and risk appetite before availing a business loan.  Understanding the nuances of Business Loans and other related terms is crucial for efficient financial planning. Businesses irrespective of scale need to carefully evaluate the kind of loan they opt for along with choosing the right tenure for them. If you are looking for instant loan for your business needs explore Moneycontrol for offers from top lenders.