Everything you need to know about business loans

In recent years, business finance has become extremely popular. It allows both small and large enterprises to run smoothly without having to worry about cash flow. Financial institutions give businesses easy access to capital so they can seize every opportunity that comes their way. Here’s what else you need to know about this loan. 

What are business loans?

Business finance is the most widely used unsecured loan offered by financial institutions. This loan is meant specifically for small and large corporations. The most appealing characteristic of this loan is that it comes in customised form. It implies that there are various business loan products available to meet your various business requirements. Working capital loans, term loans, lines of credit, company credit cards, and a few others are some of the most common types of this loan. You can apply for a business loan if you own a sole proprietorship firm, Limited Liability Partnership (LLPs), manufacturing business, retail business, and so on. Business loan interest rates in India are based on your business profile, such as the company’s financial records, business credit history, business plan, and so on. 

Eligibility Criteria for Business Loan:

  • Age: 

The business owner seeking this financing must be between the ages group of 21 years and 65 years. In addition, they must hold Indian nationality.

  • Who can apply for this loan? 

The loan is available to both professional and non-professional self-employed. For example, CAs, medical practitioners, architects, manufacturers, retailers, traders, LLPs, HUFs, and partnership firms are all eligible for this loan. 

  • Experience:

Your business must be at least five years old if you want to qualify for this loan.

  • Maximum Amount:

If you are applying for an unsecured term business loan, the minimum and maximum loan accessible to you is Rs. 5 lakhs and Rs. 25 lakhs, respectively.

  • Loan Tenure:

In terms of repayments, business loans provide a great deal of flexibility. If you are asking for a term loan, you have the option of selecting a flexible tenure of up to three years.

What are the sectors that are eligible to apply for this loan?

Some of the common sectors that qualify for this loan are pharmaceuticals, electronics, defence suppliers, textiles, packaged goods, white goods, the IT sector, the chemical industry, and a few more. 

How to apply for a business loan?

Financial institutions give you the choice of applying for this loan either online or in person at the lender’s branch.

Offline Process:

  • Visit a business loan provider’s official website.
  • Go to the business loan page to learn more about the eligibility requirements and the documentation process.
  • Use the EMI calculator to figure out how much debt you can afford.
  • Fill out the online form and submit the essential documents
  • After submission, your application, as well as details and documents will be evaluated. If everything is in order, the funds will be transferred to your account shortly.

The offline application procedure is very much identical to the online approach, with the exception that the steps listed above must be done in person at the branch.

What are the factors that impact the business loan interest rates in India?

1. Loan Amount:

In the eyes of the borrower, the higher the loan amount, the higher the credit risk. The interest rates will be slightly higher if you seek a loan of Rs. 25 lakhs than if you request a loan of Rs. 5 lakhs. As a result, it is advised that you evaluate your requirements before submitting your application. Overborrowing will not only raise your interest rate but will also increase your debt load.

2. Credit History:

When you apply for a business loan, check if your personal and business credit history is in good condition or not. Financial organisations keep track of your previous and current business debt. Your application will be rejected if your business debt-to-income ratio is too high. They also take a look at your personal profile. If they discover that you have defaulted on any loans or have a pattern of skipping EMIs on a personal level, you will be rejected, regardless of your strong business profile.

3. Loan Tenure:

Loan tenure also plays a key role in establishing business loan interest rates in India. If you apply for a short term loan, the interest burden will be lower. However, the EMI for short term loans is usually higher. As such, to maintain a proper balance between the two, it is advisable to use a business loan EMI calculator. It will help you in determining your affordability.

4. Lender-Borrower Relationship:

Relationship lending plays a vital role in determining business loan rates. You will have an edge if you intend to apply for a business loan with the same lender from whom you previously obtained the business financing or any other loan. Financial organisations prefer to provide services to borrowers who have never defaulted on a loan before.

To Conclude:

The simple eligibility requirements and easy application process have allowed businesses to apply for a business loan without any hassle. 

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