A large number of individuals living in India prefer entrepreneurship to a job. It allows them to make the best use of their talent, demonstrates their skills, introduces high-value products and services in the market, and enjoy financial freedom. Running a business is different from doing a job. As a business person, you have to take care of various responsibilities at the same time to run your business successfully. A lot of money is needed to meet daily business expenses. All individuals that own and operate business entities are not billionaires. They need to take business loans to meet various financial obligations from time to time. The market is full of several offers of business loans online. However, taking an appropriate business loan is not an easy decision at all. Not all banks and financial organizations trust entrepreneurs. It wouldn’t be wrong to say that business loans have many risks. How to know which business loan is ideal for your needs? What precautions do you need to take while applying for a business loan? Let’s elaborate.
Determine Which Business Loan You Need
In India, banks offer different business loans to multiple business owners. First, you need to get more information about these loan products.
| Types of Instant Business Loans | Brief Explanation |
| Standard Credit | It is like a consumer loan. The sole proprietor or the founder of an LLC can get this loan at a reasonable interest fee. Usually, the bank gives this loan to needy business people for up to 10 years. |
| Overdraft | It allows you to withdraw an amount that generally exceeds the remaining balance from the account. The bank will issue such loans against the current bank account of your company. |
| Line of Credit | It bank authorizes business people to spend money on essential expenses by giving them a line of credit. It issues money in installments, not in a one-time payment. |
| Commercial mortgage | Such business loans are secured by collateral and other guarantees. They have lower interest rates and flexible terms and conditions. |
You need to understand their pros and cons in great detail and choose a loan package that suits your needs very well.
Business Loan Eligibility & Terms And Conditions
Multiple banks and financial organizations offer business loans in India with different eligibility criteria and terms and conditions. You must inquire about these specifications by visiting the banks’ website and getting more information from their executives. General eligibility criteria for business loans in India are
- Indian citizenship
- Age-24-70 years
- Credit score– 750 or more
- You must have a registered business entity. You need to run your business successfully in a profitable mode for at least three years to apply for business loans online. Individual entrepreneurs, SMS, MSMEs, partnership companies, public and private limited companies, limited liability firms, manufacturers, and registered traders can apply for business loans.
- You must have a yearly turnover of at least Rs. 12 lakh or more
- You shouldn’t have defaulted on loan payments in previous years.
The terms and conditions of business loans vary from one bank to another. Therefore you should study multiple offers of instant business loans, compare them with each other, and analyze their pros and cons from different angles. Never hesitate to seek recommendations from independent loan experts. Ensure that the chosen business loan deal is in your favor and nothing goes against your interest.
Also Read: Management of Start-Up Business Cost & Budget: An All-Inclusive Guide For New Entrepreneurs
Create A Concrete Plan For Business Loan Approval
Remember, a business must constantly develop and increase its turnover. Sometimes the profit is not as per your expectations. When you apply for business loans online, the bank will request a business plan to see if you can repay the debt and how promising your ideas are.
In simple words, a business plan is a document containing a detailed description of the future of the business with calculations and prospects for several years. It explains everything- revenue, cost of goods and services, profit, tax burden, the raw materials, and sales market situation, many tables with calculations, payment schedules, and statistical charts. Usually, banks demand a business plan when you seek many loans. The bank will ask for a feasibility study if the loan amount is lower. It is a series of tables showing the effectiveness of the project, with a description. A business plan is a large document consisting of many pages. Depending on your business loan, the bank can make conclusions about:
- The maximum amount of money that can be given as a business loan,
- Loan terms,
- The procedure of paying the loan, and interest fees.
Usually, a business plan includes the following:
- Memorandum of confidentiality,
- Project summary,
- Market analysis,
- Product or service description,
- State and municipal support,
- Operational strategy,
- Business processes,
- Product sales and promotion,
- Risk assessment,
- Financial plan, and
- Cash flows.
You can prepare a business plan yourself or get it done by professionals.
Never Miss Any Document Before Applying For A Business Loan
When applying for a business loan, the bank will ask you to present different documents to support your statement. If any document is missing, the bank executive will not process your application or reject it. You must arrange the following documents before applying for the loan,
- Personal identification documents
- Address papers
- Business registration documents
- Business continuity documents
- The latest 6-month details of the current bank account of your company
- Income details
- PAN card, Aadhar card, and GST numbers
- Credit score report
- No objection certificate from regulatory authorities, etc.
Determine The Loan Amount And Purpose
Different banks offer different amounts when you apply for business loans. In general, you can get funds from ₹10 lakh- to ₹1 crore for instant business loans online. Nevertheless, you must analyze the actual monetary requirement of your company and choose the loan amount accordingly. Keep in mind that the bank will have a look at your company’s balance sheet to know whether you have the resources to pay back the money you are asking for. It is always recommended that you get a business loan only when there is no other source to raise funds and the needs cannot be postponed for a further date.
Also Read: Planning To Launch a Business? A Small Business Loan Is An Ideal Solution
Business Loan Interest Rates: Choose A Loan Package With Lowest Interest Fees
The interest rate applied on business loans put a significant financial burden on companies. That is why business people look for loans with lower interest fees. You should also do the same to get a suitable loan package. Different banks offer business loans with varying fees of interest. See the chart below:
| Banks That Offer Instant Business Loans | Interest Rate |
| State Bank of India | 11.20% |
| HDFC Bank | Min 11.90%- Max 21.35% |
| ICICI | 16.50% |
| Axis Bank | 17% Onwards |
| Bank of India | 10.20%-12.95% |
| Canara Bank | 9.20% onwards |
| Punjab National Bank | 8.15%-15% |
| IndusInd Bank | 13%-22% |
| Kotak Mahindra Bank | 16% |
| Indian Bank | 8.75% onwards |
If you see the above chart carefully, it becomes evident that public sector banks offer business loans with reasonable interest fees. Business loans offered by private sector banks are available at higher interest fees. So which bank should you choose to take instant business loans online? It depends upon the urgency of money and the requirement of cash. Generally, public sector banks take more time to respond to your application for business loans.
Moreover, they ask you to complete various formalities to process your application, and their verification process is quite stringent. On the other hand, private sector banks usually reply to your application for business loans ten days after getting your request. It helps you get your loan processed quickly and arrange the much-needed money. Analyze your condition very well and choose a bank that is ready to offer you a business loan in a quick time with reasonable interest fees.
Research About The Loan Processing Fee & Tenure
Before taking out a business loan from a particular bank, don’t forget to check the loan processing fee and its tenure. The loan processing fee is a one-time and non-refundable service charge taken by banks to cover loan processing expenses. The lower the loan processing fee is, the more amount you will get. It is always beneficial to choose a loan with extended repayment tenure. It helps you meet all essential business obligations and pay back the borrowed money in small instalments throughout the repayment tenure.
| Business Loan offered By Banks | Processing Fee | Repayment Tenure |
| The State Bank of India | 2%-3% | 12 months-5 years. It may exceed as per your request. |
| HDFC Bank | 0.50% of the entire loan amount. | 12-48 months |
| ICICI | 2% + applicable taxes. | 12-36 months |
| Axis Bank | 2% of the loan amount and taxes | 12-36 months |
| Bank of India | 1% of the entire loan amount | 12-84 months |
| Canara Bank | 1% of the whole loan amount | seven years |
| Punjab National Bank | 1.8% and taxes | 12-60 months |
| IndusInd Bank | 2.50% | 12-60 months |
| Kotak Mahindra Bank | 2% of the loan amount +GST | 24-60 months |
| Indian Bank | 0.99%-2% | 12-48 months |
Use an online loan calculator and calculate the overall cost of taking a particular business loan. It is always best to get only the required loan amount with the lowest possible interest fees, processing charges, and prolonged repayment tenure.
Don’t Make Any Mistakes In The Loan Application.
Whether the bank will approve your application for a business loan or not depends upon how you apply for the loan and the accuracy of the information mentioned in the application form. In India, the sad truth is that most people don’t do proper research and homework before applying for any particular loan product. They just go to the bank’s nearest branch and let the bank manager know about their desire to take the business. Bank executives, who are tasked with selling more expensive loan products to many customers, persuade people to take costly business loans that don’t suit most business people’s needs. As a result, they suffer significant financial losses, default on loan repayment, and face legal action from law enforcement agencies.
Before applying for a business loan, determine how much money you need and select a bank after doing the initial research work. If you want to apply for the loan in offline mode, just visit the nearest branch of the selected bank, inform the bank manager about your desire to take a business loan, fill up an online application form with authentic details, attach the required documents, and submit your application.
If you are applying for a loan using the global internet, go to the bank’s website and complete an application form with the correct details. Today, many individuals prefer online loan application methods because it’s pretty convenient and fast. The bank executives will scrutinize your application for all possible errors and data accuracy. After this, they will look at your profile & and the reputation of your company in the market.
They will conduct background checks, interviews, and verification of your records to eliminate the possibility of any fraud or embezzlement. Once everything is successfully verified and bank executives are satisfied with your assessments, they will approve your application for the loan, and you will get the requested money in a bank account in 3 to 4 business days. Correct submission of the application, answering the questions of bank executives correctly, submitting the required documents will help you get the loan of business needed comfortably.
Prepayment Facility
While taking a business loan from a particular bank, see if the loan agreement includes prepayment. Prepayment of the loan allows you to repay the borrowed money before the official ending of the loan repayment tenure by paying extra fees to the banker.
Conclusion
Taking a business loan is a huge undertaking. You need to get detailed information about different business loans available on the market, understand their pros and cons, and see which one suits your needs. Moreover, you should follow the tips mentioned above while taking a business loan for valuable purposes. These recommendations will enable you to choose the right loan product, meet your business needs and ensure the well-being of your company.
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