With the rise of the ‘Make in India’ campaign, the government infusing the market with incentives to start-up businesses and resources for the growth of the small-scale enterprises, a lot of people are taking up interest in entrepreneurship. Due to this sudden increase in entrepreneurs and start-ups, the banks have started to benefit from business loans along with the youthful and spirited entrepreneurs. The business loans extended by the big-shot banks are especially planned to assist small businesses in fulfilling their capital requirements. The interest rate on business loans starts from as low as 8.85% per annum with the processing fee as 6.5% of the borrowed loan amount. The financial institutions can grant loans up to Rs.40 Crores with the loan repayment tenure as 120 months.
It is essential to go through the eligibility criteria which fences the approval of the business loans in India. Before you read further about it, check if you are up to mark considering all of the following conditions. If yes, you are strapped up and good to go! The eligibility criteria for the loan differs with different banks but the generic one is as follows: –
- Only the self-employed professional and non-professionals with business entities are eligible to avail the loan.
- The business must be producing an annual turnover of at least Rs.40 Lakhs.
- The individual must have a minimum experience of 3years in the current business and 5years of the cumulative business experience.
- The business must be profitable for the past 2 years and have a minimum annual income of Rs.1.5 Lakhs per annum. The ITR of the last year must be filed.
- The borrowers must be between the ages of 25 to 55 years old at the time of application.
- Location of the business could also be a factor of the decision of approval or disapproval.
A business loan could be both secured and unsecured. In case of a secured business loan, minimal documentation is required. For an unsecured loan, the lender has no collateral to crash upon, and therefore involves a larger amount of documentation, verification, and valuation process.
- Self-attested application form with an attached passport size photograph of yourself.
- Proof of Identity and Age: Pan Card/ Passport/ Voter ID/ Driving Licence/ Aadhar Card.
- Income Proof: Latest Income Tax Return Certificate, Balance sheet and P&L account from the last 2 years, Form 16, CA audited Financial Sheet, Qualification Certificate, Certificate of Practice, Shop Act Licence, Sales Tax Certificate, etc.
- Residential Proof: Aadhar Card/ Ration Card/ Voter ID/ Driving Licence/ Passport/ Electricity or Water Bills.
- Ownership of the Business: Bank statement of the last 6 months, sole proprietorship declaration or a certified copy of the partnership deed. Lastly, a certified true copy of the memorandum and articles of association.
You must be careful while taking up a business loan, before you avail it ensure that you have a strong business plan, foresee a decent amount of cash flow in the future through your business, and the capital return must be greater than the interest rate of the loan borrowed. The borrower must do sufficient research in order to acquaint themself with the various loan schemes offered by numerous banks and non-banking financial lenders and compare the plans in terms of interest rates levied, processing fee, EMI scheme, overdue EMI interest, loan repayment tenure, amount of loan that will be sanctioned, processing time, disbursal process and pre-closure fee. Once, you have zeroed down upon the suitable loan plan by a lending institution of your choice, the generic procedure is as follows:
- Step 1: You can apply for business loans both offline and online. A number of financial institutions extend the option of direct applications online through their website. To apply online, you need to simply visit the lender’s respective website, click up on the loan product that you want to apply for, and click on ‘Apply Now’.
- Step 2: Then, you will be redirected to another webpage, wherein you key in some necessitated details into an online application form. Most probably, you will be asked for your name, age, contact number, city of residence, details about your business, etc. Once finished, submit the application.
- Step 3: After verifying whether or not you are eligible for the loan, a representative from the bank or financial institution will contact you regarding pushing the loan application process forward.
- Step 4: You can also visit the nearest branch of a bank or financial institution and then directly apply for a loan offline through the branch. In this case, you need to submit the loan application form along with the essential certified documents at the branch.
- Step 5: Once the bank has verified your loan application and documentation, your application will be approved. Later, the loan amount will be credited into your account.
Whether you want to establish a new business, expand an existing one, manage cash flow within the organisation, manage a seasonal business or purchase machinery and equipment, repay your debts, turn business losses to profits, produce more working capital, a business loan is the ultimate solution. Before you indulge yourself into the jaws of the banks and loans, you must build up an understanding concerning the loan schemes.
Following are a few factors that one must consider:
- Assess Your Funding Requirements: Work out the amount your business really needs, the quantum of loans extended to businesses and professionals are usually pretty high. It is best not to borrow more than what you require because later the repayment could become a hassle.
- Research the Types of Business Loans: Now-a-days there are numerous banks that offer variegated business loan schemes as a segment of their product mix. Different loan schemes have varied terms, loan tenures, interest rates, loan amount, and repayment options. Further, due to Government intervention, selected loans may be specially designed and directed towards certain sectors or segments of the industry, therefore aiding individuals belonging to these groups to avail business loans of either a lower interest or better terms.
- Check Your Credit Score: Credit Score determines your creditworthiness. You can increase your chance of having your loan application approved at better terms and interest rates if you keep your credit score above 750. This is due to the fact that people with a good credit score are less likely to default during repayment.
- Check the additional charges apart from the interest rate.
Understand the repayment terms and do not default upon your EMI payments.