Here are The Things You Should Know About a Business Loan in India
Are you worried about starting your business? Want a business loan? Do you want to learn more about loans for businesses? This article will tell you some things about business loans in India that you should know.
Who can get a business loan?
The first thing to do is see if you qualify for a small business loan. Those who fit the following criteria are eligible to apply for a business loan:
- Self-employed people (freelancers)
- Proprietors of sole proprietorship firms.
- Partnership firms and limited-liability partnership firms.
- Private and public companies.
Here are some standard requirements for getting a loan that you should keep in mind for a smooth application process:
- You must be at least 21 years old and below 65 years when applying.
- Your business should have made money at least two years ago.
- You and your business must have been in service for at least two years, and you must have run a business for at least five years.
How to ensure your loan is approved?
The ability to repay a business loan is a prerequisite for receiving one. We’ll go over several strategies for accomplishing that now.
Maintain a healthy credit score
The owners’ or founders’ personal credit scores and payment histories from various institutions affect a firm’s loan eligibility. High credit scores indicate financial responsibility and on-time loan payments.
It also shows your financial reliability. Credit scores above 700 can improve your loan worthiness, even if your lender requires a lower score.
Demonstrate adequate cash flow in the business
Your company’s cash flow analysis will influence the lender’s loan decision. They will also check your tax returns and debts to make sure you can pay your loan on time. Cash-flow loans don’t require collateral, so you’ll need a reliable income to impress your lender.
Keep your documents ready for the loan application
Since this is such a crucial procedure, extra attention must be paid to it. Make sure you have all the necessary paperwork available to expedite the loan application process, both for yourself and the lender.
Documents required
- Identity proof
- PAN card
- Address proof
- Proof of business
- Business and personal bank statements (last six months)
- Business and personal tax return records
- Business’s financial statements
- Business’s legal documents such as commercial lease and franchise agreement.
All you need to know about business loans in India
Term Loans
With a term loan, the lender gives you money upfront, and you have to repay it over an agreed period with interest.
Small firms with an excellent credit history may qualify for a term loan. There are a number of scenarios in which a term loan would be useful:
- Investing in long-term assets such as machinery and equipment.
- Investing in commercial real estate or a brand-new manufacturing facility to hasten or expand output.
- Consolidating operations through the purchase of a separate firm.
- Funding the company’s day-to-day operations so that operating costs can be met.
Business lines of credit
Revolving credit is useful for many companies because it allows them to borrow a set amount and then use that money as they need it rather than getting all of the money at once. You and the lender may settle on a maximum amount. Withdraw as much or as little as you need to pay for immediate costs and debts up to this limit.
A certain amount of money is made available to you, but you are under no obligation to take it all out at once, thanks to this feature’s built-in flexibility. As a result, you won’t have to worry about making payments on an enormous sum of money, and you’ll only have to pay interest on the actual amount you borrow.
In addition, you can make repayments as necessary, taking into account the company’s cash flow and financial stability. You are free to make repayments in as many or as few instalments as you like.
Equipment financing
Business owners can benefit from equipment loans when buying machinery, equipment, or commercial vehicles. The fixed asset secures the small business loan. Thus, equipment financing leases the machinery, equipment, or vehicle to secure the loan. To repay the debt, the leased asset is sold. This may be ideal for those with large debts or a shaky financial history who need capital to buy an item.
Invoice financing
You may need to give customers 90 or 180 days to pay after shipping their goods if you’re a manufacturer. However, fast vendor payment may be necessary. You’ll still need financing for operations and expansion. Invoice finance secures a small business loan against client payments.
Commercial real estate loans
Investing in commercial property is a lot like investing in machinery. However, a business real estate small business loan is secured by mortgaging a commercial property such as a manufacturing plant, retail store, storage facility, etc. The commercial property serves as collateral for the loan.
The financing-to-value ratio is the primary factor in any small business loan. The loan amount offered is a percentage of the commercial property’s fair market value. LTV is often between 75% and 80% of the property’s value.
Micro loans
Micro loans, as the name suggests, are small amounts of credit given as small business loans by banks, mostly without any collateral. You need to repay the loan in a very short duration.
Summing-up
Piramal Finance provides you with tips that you should keep in mind while taking business loans and small business loans. You must submit specific documentation with your application, as requested by the lender. Your loan application won’t be handled if these supporting documents aren’t provided.
You should get clarification regarding your business loan interest rate or small business loan interest rate so that you have a fair idea regarding how much to repay.
Additionally, visit Piramal Finance for more in-depth, instructive articles about finances.