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Business Loans

An Overview

Business require an adequate amount of capital to run day to day expenses or pay for expansions. Business loan can be availed for an existing business to manage the immediate short term capital or cash flow requirement. A business loan is a loan given to an Individual or company which is repaid by way to easy installments according to the lenders terms and conditions.

A business loan comes under the category of unsecured loan, The major benefit of business loans in India is that it does not require any collateral or security to avail the loan and most of the banks sanction business loans with minimal pre-payment charges.
The business loan depends on the annual profit of a business and number of years you are into that business. It also checks the cash flow and other aspects of revenue generation. Once the bank considers all the major factors, it decides the eligibility of loan amount which a business can get.
Under business loans getting an approval is possible within few days if an individual or the company meets the necessary eligibility criteriaa along with the documents.With a strong banking system and network of lending through Banks and Non-Banking Financial Companies (NBFCs), it has become a very easy process to avail a Business Loan.

Characteristics of Business Loan

  • Business Loan amount can be from Rs.5 lakhs onwards
  • Simple and easy documentation
  • Business Loan tenure can be from 12 months to 48 months
  • Business loan interest rates varies from 16% to 21% which depends on the eligibility of the applicant

Who is eligible for business loan?

The business loan can be offered to an individual who is running an authorized business with a decent earning can apply for a business loan. Different banks have different criteria and terms to validate the authenticity of his/her business. After complete verification, banks have the sole authority to decide the loan amount and even whether to offer or decline the loan to the borrower .

Below are some points which are generally considered before offering a loan

  • Type of the business: Proprietorship, Partnership, Pvt.Ltd. or Public Ltd.
  • Turnover of the business.
  • Profit of the business.
  • Cash flow of the business.
  • Repayment of past loan and Credit score.
Factors Deciding Business Loan Eligibility

The business loan eligibility depends on the annual profit and the turnovers of a business also number of years you are into that business is a key factor. Banks also checks the cash flow and other aspects of revenue generation. Once the bank considers all the major factors, it decides the eligibility of loan amount which a business can get. The main criteria of approving a business loan is how much profit a business makes and how the borrower will manage to repay the EMIs and other expenses related to the business.

Few important factors are:

  • Age Limit
    The applicant should be min 21 years & max. 65 years.
  • Income
    Business should be profit making at least for the past 2 years.
  • Business turnover
    should be the minimum Rs 60 lacs and have a growing trend.
  • Co-applicants
    This is optional to the applicant, not mandatory in case of business loan.
Customer Profiles that Banks Consider for Business Loans

The customer who are no salaried and run their own business are considered for business loan. The category consists of Self employed professionals(SEP), self employed non professionals(SENP) and the business entities/companies. The type of customer category who can avail business loan are as under.

Self Employed Professionals (SEP) / Professional Practitioners are usually

  • Chartered accountants
  • Medical Practitioners
  • Legal professionals
  • Architects and designers.

Self-Employed Non-Professionals (SENP)/ Non Professional Practitioners

  • Traders
  • Manufacturers
  • Service Providers

The eligibility criteria, documentation requirement, interest rate; loan tenure differs as per their category.

Business Entities

  • Proprietorship
  • Partnerships firms
  • Private Limited and closely-held Limited companies fall under this category.


Certain set of documents are required as the Banks/ NBFC follow a specific procedure while processing loan applications. Therefore, even for the consideration for a bank loan, the Entrepreneur must compile and submit the Bank a strong documentation. The following are some of the documents required for processing of a business loan application:

  • 2 passport size photographs
  • Copy of PAN card of the Promoters / Directors / Partners / Individual
  • Copy of Aadhar card
  • Copy of Address Proof of the Promoters / Directors / Partners
  • Copy of Business registration Proof
  • Copies Bank Statement last 12 months for all saving and current accounts.
  • Copies of Income Tax Return for last 3 years, with computation of Income, Profit and loss account and Balance sheet.
  • Copies of Audit reports
  • Financial Projection
  • Business Loan Request Letter
  • Copy of Incorporation in case of private ltd company
  • Copy of Partnership Deed in case of Partnership Firm
  • Copy of MSME / Udyog Aadhaar Registration (if available)
  • Copy of GST Registration.
  • Copy of GST returns of last 4 quarters

The above list is indicative only. The Banker at his/her discretion might request for more or detailed information based on the credit profile of the bank. Further, submission of the above documents does not guarantee the sanction of the loan. The above documents must be submitted to the bank and the credit opinion would still be considered by the Banker based on a various of factors.

Check List before applying a Business Loan

Taking a loan allows you to borrow money for almost all your requirements and to have a better experience, there are certain points you must know before availing a personal loan.

  • Loan Amount & Tenure
    Depending on your income and repayment capacity, decide upon the loan amount you need and for how much duration.
  • Eligibility
    Checkout eligibility criteria of different banks and identify which one suits your needs the most.
  • Processing Time
    For your immediate monetary requirements, knowing about the processing time of loan can be of great help.
  • Interest Rate & other charges
    Your complete loan experience depends upon the interest rate, processing charges, prepayment charges and other such charges. Know them before hand to take a well-informed decision.
  • Repayment History
    Your financial health will define your credit worthiness. Make sure you have all the necessary documents to prove your strong credit history and income.
  • Documentation
    Note down the list of documents required to apply for a loan.
  • Foreclosure
    Do not ignore independent foreclosure policy and charges of different banks.Please note the same is negotiable.
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