Business Loan

1. Secured loan ( Loan against property)

2. Unsecured loan
3. MSME

1. Secured loan ( Loan against property)

A Loan Against Property (LAP) is a loan given against the mortgage of a property. The
loan is given as a certain percentage of the property's market value, usually around 40 per
cent to 60 per cent. Loan amount is considered based on type of property, current usage of
the property & the market value of the property. The property should be fully constructed,
clearly demarcated, identifiable & registered.

LAPs are, one of the most sought-after loans in India, LAPs are also very easy (or simple) to
avail and repay. This is so because real-estate is mortgaged when you avail LAP and real-estate
prices rarely dip which makes them much safer.

Eligibility criterion

Eligibility criterion for banks and other institutions are almost same for salaried professionals,
self-employed professionals and self-employed businesspersons. According to the criteria, you:

 Should be an Indian national

 Should be at least 21 years of age at the time of submitting the loan application
 Should have been employed by your current organization or been involved in your
business for a certain number of years
 Should have the minimum required salary or monthly repaying capacity
 Should have submitted EMIs for other loans and made your credit card payments on time
for three months prior to submitting the loan application

Documents Required

Salaried

 KYC Documents:- Voters ID/PAN Card/Aadhar Card(any one).

 Proof of Residence:- Utility Bill(not more than 3 months old) /Passport/Aadhar Card (any
one).
 3 years ITR or Form-16 (2 years)
 Copy of Appointment letters
 Latest 6 months Bank Statement(where salary/income is credited).
 Salary slips for last 3 months.
 2 Passport Size Photographs.
  Property Papers (Residential/Commercial/Industrial/Plots).

Self Employed

 KYC Documents:- Voters ID/PAN Card/Aadhar Card(any one).

 Proof of Residence:- Utility Bill(not more than 3 months old) /Passport/Aadhar
Card/Rent Agreement (if customer is rented).
 3 years ITR with computation
 Proof of continuity of business.
 Latest 6 months Bank Statement.
 Office Address Proof.
 Proof of residence or office ownership.
 Property Papers(Residential/Commercial/Industrial/Plots).

2. Unsecured Loan- Unsecured Business Loans don't require any collateral. The loan is
extended based on the borrower's financial position and credit history. You can
apply for this loan if you are self-employed or are a partnership/proprietorship/
limited company.

3. MSME (Micro, Small and Medium Enterprises), loans are mostly offered to start-ups and
small entrepreneurs. MSME loans are unsecured loan offered by banks and NBFCs only if the
applicant meets the eligibility criteria MSME loans are defined by Indian Government and RBI
as the loans for business enterprises that need support in terms of finance, infrastructure and
other areas.

MSME Loans from Popular Banks and NBFCs

There are a number of private sector banks that offer MSME loan at reasonable interest rates.
Below mentioned are some key banks and NBFCs that offer MSME loans at attractive interest
rates with added benefits:
MSME Loans from SBI 2019 (Small Business Loan)

Interest Rate Based on business profile*

Loan Amount Max. up to 25 lakh

Processing Fee First year 1% + Taxes and 0.35% for 2nd years and onwards

Business Existence Min. 5 years in same locality/area

Bank Account History Current account holder for at least 2 years

Min Avg. Monthly Balance More than Rs 1 lakh in last 12 months

Margin 10%

Collateral Security Min. collateral of 40%

Repayment Period Up to 60 months

Note: The mentioned interest rates, fees and charges are subject to change and depend on the
sole discretion of the bank and RBI. GST and service tax shall be levied extra on the mentioned
charges

*Based on the health of your business, revenues and annual turnover

Business Loans from HDFC Bank 2019

Interest Rate 15.65% onwards*

Loan amount Up to Rs. 50 lakh

Processing Fee Up to 2.50% of the loan amount

Overdue EMI Interest 2% per month on EMI / Principal Overdue

Pre-payment Charges Nil, until repayment of 6 EMIs

Collateral / Security Not required

Note: The mentioned interest rates, fees and charges are subject to change and depend on the
sole discretion of the bank and RBI. GST and service tax shall be levied extra on the mentioned
charges

*Based on the health of your business, revenues and annual turnover

MSME Loans under CGTMSE scheme from ICICI Bank 2019

Interest Rate Based on your business profile*

Public Limited Companies, Partnership Firms, Sole

Loan offered to
Proprietorship Firms, Private Limited Companies

Loan Amount Up to 2 cr

Cash Credit Feature Available

Collateral / Security Not required

Eligible Business Segment Micro Small Enterprise, excluding traders

Note: The mentioned interest rates, fees and charges are subject to change and depend on the
sole discretion of the bank and RBI. GST and service tax shall be levied extra on the mentioned
charges

*Based on the health of your business, revenues and annual turnover

As per the Micro, Small, and Medium Enterprises (MSME) Development Act 2006, these
businesses are classified in two categories, service enterprises and manufacturing enterprises.

 Service Enterprises: The enterprises engaged in providing services come under this category

Enterprises Investment in Equipment

Micro Does not exceed the limit of Rs. 10 lakh

Small More than Rs. 10 lakh and up to Rs. 2 crore

Medium More than Rs. 2 Crore and up to Rs. 5 crore

  Manufacturing Enterprises: Enterprises that are engaged in manufacturing or production of
goods come under this category

Enterprises Investment in Equipment

Micro Does not Exceed the Limit of Rs. 25 lakh

Small More than Rs. 25 lakh and Up to Rs. 5 Crore

Medium More than Rs. 5 Crore and Up to Rs. 10 Crore

MSME Loan Schemes

Government Schemes that come under MSME loans include Mudra Loan, CGTMSE, PMEGP, etc.
These schemes ensure that the new and existing entrepreneurs in the country get the
necessary financial support and funding for their businesses.

Mudra Loan (Micro Unit Development and Refinance Agency)

MUDRA (Micro Unit Development and Refinance Agency) was introduced to provide support to
the small business owners. MUDRA yojana is further classified between three categories named
as Shishu, Kishore and Tarun.

In the Shishu category, an MSME loan is provided up to Rs. 50,000 to a startup company. In the
Kishore category, a loan of up to Rs. 5 lakh is provided to the companies that have been running
for a while and want to get more established. In the Tarun category, the MSME loan is provided
up to Rs. 10 lakh to companies that are established and are looking for expansion. The
maximum repayment tenure is of 36 months for all Mudra loan categories

CGTMSE (Credit Guarantee Funds Trust for Micro and Small Enterprises)

CGTMSE (Credit Guarantee Funds Trust for Micro and Small Enterprises) was introduced to
establish a strong credit relief system and promote a better credit flow for the MSME sector.
Under the CGTMSE scheme, the loan is backed without any external collateral or third party
guarantee.

Here, the MSME loan sanctioned by the Member Lending Institution (MLI) is backed by the
scheme which provides the guarantee cover for a large portion of the loan amount. Under
CGTMSE scheme, both new and existing medium, small, and micro enterprises, including
service enterprises are eligible for a maximum credit cap of Rs. 2 crore.
CGTMSE also offers rehabilitation assistance to the units. Any MSME unit that is in a bad
condition due to the factors beyond the control of management is supported by the CGTMSE
rehabilitation assistance. The maximum credit cap of Rs. 1 crore is offered to the dilapidated
MSME units.

Eligibility of CGTMSE Scheme

CGTMSE scheme is offered to various institutions which are as follows:

 Scheduled Commercial Banks

 Regional Rural Banks (RRBs)
 National Small Industries Corporation (NSIC)
 North Eastern Development Finance Corporation (NEDFi)
 Small Industries Development Bank of India (SIDBI)

CGTMSE scheme aids all new and existing medium, small, and micro enterprise borrowers who
fulfill the conditions mentioned below:

 The trust guarantees up to 75% of the defaulted principal amount for all categories and
up to 85% of the defaulted principal amount for selected category of borrowers. The
maximum guarantee cap is kept at Rs. 62.50 lakh / Rs. 65 lakh for the credit facilities up
to Rs. 50 lakh.

 The extended guarantee cover for the micro enterprises with credit acquired up to Rs.
4.25 lakh is 85%. Also, the extent of guarantee cover remains 50% of the sanctioned
amount of the credit facility for credit above Rs. 50 lakh with a maximum guarantee
cover of Rs. 1.5 crore.

 Associated charges such as penal interest, commitment charge, and service charge
including any other levy / expenses are not covered by the scheme.

 Small and micro enterprises owned and / or operated by women are also eligible for a
guarantee cover of 80% and all the credit/loans in the North East Region (NER) for credit
facilities are eligible for a guarantee of Rs. 40 lakh. Other aspects such as retail trade,
educational institutions, agriculture, training institutions, and self-help groups (SHGs)
are not eligible for guarantee cover under the scheme.

Documents Required for MSME Loan

 Duly filled Application form

  Identity Proof: Passport, driving licence, PAN card number, Voter’s identity card
 Residence Proof: Passport, lease agreement, trade license, telephone and electricity
bills, ration card and sales tax certificate
 Age Proof: Passport, Voter’s identity card, Photo PAN card

Financial documents:

 Last 12 months bank statement

 Business registration proof
 Proprietor(s) PAN Card Copy
 Pre-clos Proprietor(s) Aadhar Card Copy
 Partnership deed copy
 Company PAN card copy
 P & L and balance sheet copy of last 2 years
 Sales tax documents
 Municipal tax document

Top of Business Loan Providers in India

The names of the top 10 business loan providers in India are mentioned below:

 ICICI Bank
 Fullerton India
 HDFC Bank
 Bank of Baroda
 Kotak
 Au Financiers
 Magma Fincorp
 Federal Bank
 State Bank of India

Self employee

1. Proof of Business - Shop and Establishment Certificate/ Vat Registration Certificate/ Service
Tax Certificate.

2. Last 3 years IT tax returns with profit and loss account and balance sheet duly audited by CA.

3. Existing Loans’ Sanction letters accompanied with repayment track.

4. Business profile on the letterhead of the company.

5. ID/ Age Proof - PAN Card/ Passport/ Signature Proof/ Aadhar Card and Residence Proof –
Passport/ Utility bills/ Bank Statements.

6. Cheque of Processing Fee.

Most banks follow the same general rules in terms of document requirement. There may be a
few changes in certain cases, in which case, our loan officers will guide you personally to
complete the documentation process. Salaried individuals.

Salaried

1. Form 16 of last 2 years or Income Tax Returns.

2. Salary slips of last 3 months.

3. Last 6 months bank statement reflecting salary credits.

4. ID/ Age Proof - PAN Card/ Passport/ Signature Proof/ Aadhar Card and Residence Proof –
Passport/ Utility bills/ Bank Statements.

5. Cheque of Processing Fee.

Partnership Firm

1. Age proof of all the partners in the form of PAN Card, Passport or Aadar Card.

2. PAN Card of the company.

3. Residence proof of all the partners – Utility Bills/ Passport/Bank statement/ Registered rent
agreement.

4. Proof of Business - Shop and Establishment Certificate/Vat Registration Certificate/ Service

Tax Certificate.

5. Latest 3 years Income Tax returns with profit and loss and balance sheet duly audited by CA.

6. Latest 12 months bank statement of the Company and of the Partners’ Savings Bank Account.

7. Existing Loans' Sanction letters accompanied with repayment track.

8. Business profile on the letterhead of the company.

9. ID/ Age Proof - PAN Card/ Passport/ Signature Proof/ Aadhar Card and Residence Proof –
Passport/ Utility bills/ Bank Statements.
10. Cheque of Processing Fee.

Private LTD CO

1. Application form duly filled with photographs of directors.

2. Age Proof of Directors - PAN Card, Aadhar Card, passport.

3. Residence Proof of Directors - Utility Bills/ Passport/Bank statement/ Registered rent

agreement.

4. PAN Card of Company.

5. Education Qualification - A professional qualification certificate in case of

Doctors/CA/Architects.

6. Proof of Business - Shop and Establishment Certificate/Vat Registration Certificate/ Service

Tax Certificate.

7. MOA, AOA, List Of Directors, Share Holding Pattern of the Company.

8. Last 3 years IT returns with Profit and Loss account and balance sheet duly audited by CA.

9. Latest 12 months bank statement of Company of all current accounts and the same for
Director’s Savings Bank Account.

10. Existing Loans’ sanction letter with repayment track of company and Individual Directors.

11. Business Profile on the Letter Head of the Company.

12. ID/ Age Proof - PAN Card/ Passport/ Signature Proof/ Aadhar Card and Residence Proof –
Passport/ Utility bills/ Bank Statements.

13. Cheque of Processing Fee.

Businesses need ample amount of investment to fund for start-up expenditures or pay for
business extensions. For such purposes, companies take out business loans for their financial
assistance. It is a debt which a company is obligated to pay back within a specific tenure
according to the terms and conditions of the granted loan. Start-up Business loans can be taken
for a variety of essential requirements like starting up a new firm, business expansions, dealer
and vendor financing etc.

The major benefit of business loans in India is that it does not require any collateral or security
and most of the banks sanction business loans with minimal pre-payment charges. Another
benefit is that if there is a failure of repaying the loan, then the business owner will not solely
face the burden of penalties but the whole company will be liquidated in order to clear the
business loan.

Features of Business Loan

Business Loan is a great option when it comes to expanding your existing Business or starting
something new of your own. There are some salient features of Business Loan which you
should know before applying for one, which includes the following -

 Collateral Free Loan

Business Loans are unsecured loans which mean that no security or collateral is required to
apply for a Business Loan. One does not need to provide any asset like a car or a house to avail
a Business Loan. The financial lenders review the Loan Applicant’s credit history, age, location,
income details of the past few years and only then the loans are offered.

 Fixed Interest Rate

Business Loan Interest Rates are fixed, which means the Interest Rate will not change for the
entire Loan Tenure. The Interest Rate of Business Loan starts from 14.99% onwards.

 Flexible Repayment tenure

The Loan Applicants can get a flexible repayment tenure up to 5 years, making it more
preferable over other Loans.

 Loan Amount

The loan amount that one can avail in business loan can be up to Rs 50 Lakh. It mostly depends
on the financial credibility of the borrower before offering the business loan.

 Minimal Paperwork and Fast Processing

Since loans can be easily applied online, it requires minimal paperwork. Only the necessary
documents are required to apply for a business loan. Once the loan application is approved, the
processing of the loan amount is followed by the disbursal.
Business loan interest rates

 Business Loan amount can be from Rs.3 lakhs onwards

 Simple and easy documentation
 Business Loan tenure can be from 12 months to 48 months
 Business loan interest rates start 14.99% onwards which depends on the eligibility of the
applicant

Overdrafts: An overdraft means overdrawing from a current account. In simpler words, an

account holder takes out more money that has been deposited in the account. An agreed rate
of interest will be charged if the overdrawn amount is within the limits of a preceding
agreement.

Term loans: Currently many types of term loans are available such as short term loan, long term
loan and other intermediate loans. An entrepreneur can avail these loans according to his/her
requirements and economical position. Mainly the loan tenure for a short term loan is 3 years
and for long term loan it is 10-15 years, there will be some variations in the interest rates of
both the tenures.

Term loans are divided into two parts that is unsecured business loans and secured business
loans. In secured loans, the collateral or security can be a certain property, machinery or a
business ground and they will usually possess lower interest rates as compared to an unsecured
one.

Bill discounting: This process gets you instant cash back on your large purchases and you get
discount on the credit sales. All you need to do is to submit the important documents which
validate your transactions like invoices, transportation receipts, lading bills etc.

Letter of credit: A letter of credit is issued by the buyer’s bank which declares that a seller will
receive the payment in full when all the terms and conditions regarding sale and delivery have
been completed. This situation generally arises in international business finance where seller
and buyer are unknown to each other, therefore the business transactions is done on the basis
of bank’s credit worthiness.

The important documents which a seller has to present in order to get the payment consist:

 Commercial documents such as invoice and lading bills

 Transportation documents
 Insurance certificate
 Official documents such as origin certificate, inspection certificate, commercial and legal
documents
Special schemes for women entrepreneurs

Nowadays, banks are giving attractive schemes to women entrepreneurs. These lending
schemes are exclusively for women and it gives them relief in terms of interest rates and
collateral. Some of banks also have special cells for women entrepreneurs where they provide
them business consulting, training and counselling along with avenues for the marketing and
showcasing of their products. They also show them the realistic view of their business by giving
references of the similar businesses.

Women entrepreneurs whose ownership is less than 50 percent in the company are not
allowed availing the benefits of the women’s special schemes.

MUDRA YOJANA:

This is a special a government business loan scheme for small and medium businesses. Though
the funding is provided through the banking institution, it is the government of India who
provides the required cash to the bank. Mudra loan scheme is specifically designed to make
government loans for small businesses available to all over India.

Document Required for businesss loan

Here are the following documents which have to be submitted by an applicant who is going to
take a business loan:

 Last 3 years Income Tax statements

 Bank account statements
 Business proof
 Practise certificate
 Proof of ownership of the possessions which are used for business purposes
 Your recent photographs
 Identity proofs such as Aadhar Card, Voter ID Card, PAN Card
 Residence proof
 KYC documents of a co-applicant

Like any other loan, business loan also analyses your credit worthiness by checking your
reliability and repayment ability. For this purpose banks generally look at your past financial
history and go through your business records.

The people who are willing to get a start-up business loan might face difficulty in getting a loan
because it will be tough for the bank to believe that you are a trustworthy client for them. In
that case, banks usually examine your previous financial background, credit history, liabilities,
other debts (if any), education and your business plan. A well planned and researched business
plan shows your dedication towards your business and the capital money that you have
invested in your business personally is also considered by the bank.
Banks are even going to start off schemes of approving loans on the basis of good credit score
and loan record of their existing loans. But taking many loans also can also restrict your credit
worthiness and would create a negative impact of your liabilities.

Having insurance with your properties and other equipments acts like a cushion for your bank
to sanction a loan. As banks are always concerned about the security and risk factors attached
to a business, some of the banks even insist their clients to get insurance before approving their
application of loan for small business.

Therefore a well-planned and professional plan is always important before approaching a bank
for a loan. You should be prepared and do a SWOT analysis of your business plan, and have
thorough information about the marketplace of your products and how you are going to lead
there.

Banks are also going to focus on medium and small business loans and long term capital loans
as well as the expansion of credit amenities to new areas such as less developed cities and
states in order to promote the comprehensive growth of such small businesses.

The following is the handy checklist of things business loan requirements; you must keep in
mind before applying bank loan for your business:

 You must keep a favourable credit score that is between 700-900 points
 Ensure that you meet the eligibility criteria, business loan requirement and have all the
necessary documents ready
 Have sufficient funds ready, in case the lender needs you to put something forward in
advance
 As you are applying for business loan, you must maintain an inclusive database of the
company’s financial situation and past performance along with its cash flow statement.
 If you are applying for business loan for new business then you must focus on the ideas
and presentation.

Setting up a new business or putting a step forward for your existing business is highly
ambitious and you need a lot of courage and right things to keep going in this competitive
world. With the above checklist, you will be able be go in right direction of acquiring the
necessary funding for your business.

Pros of business loans

1. Business loan does not require any collateral

Business loans are unsecured loans which means it does not require any asset like a house, car
or jewellery to apply for a loan.

2. Minimal paperwork and quick processing

Business loan does not require lot of paperwork. Only the KYC documents along with the
necessary business documents are mandatory to apply for business loan and since the entire
process of applying for a loan is online, the processing time is quick with no manual
intervention.

3. Business loans cover most of the business purposes

Business loan covers all kinds of business purposes be it day to day financing, daily business
operations or even large scale business manufacturing - business loan caters to all the financial
needs.

Cons of business loans

1. Interest rate

Since business loans are unsecured loans, the interest rate offered on business loan is slightly
higher just like in the case of personal loan. However, there are some NBFCS that might offer a
little low interest rate which one may want to consider.

2. Loan eligibility

The business loan eligibility is slightly stringent as compared to other loans. The banks and non-
banking financial companies have different eligibility criteria for business loan.

3. Poor credit history

If your financial profile has a bad credit history and the business has suffered losses more than
profits, then there might be a chance that the financial lenders will reject your loan application.
So, before you apply for a business loan, you must evaluate your credit score and rectify the past
errors, if possible.

Q: For what purposes business loan can be availed?

Ans: Business loans can be availed for small or large scale businesses. If you are willing to start
a new business, expanding the existing business, buy machinery and other capital goods, expand
the business operations and purchase equipment you can apply for business loan from your
preferred provider.

Q: What are the types of business loans in India?

Ans: There are different kinds of business loans, some are government based and others are
private ones. Some common business loans include - working capital loans, term loan, loan
against property, loan against share, Pradhan Mantri Mudra Yojana, SIDBI, MSME loans,
machinery loans, business loan for women etc. are some of the business loans in India.
Q: Are there business loans for women entrepreneurs?

Ans: Yes, women entrepreneurs too can avail business loan which are specifically designed for
women. Most of the banks and non-banking financial companies offer women entrepreneur
centric business loans.

Q: What are the loan tenure options for business loan?

Ans: The repayment tenure of business loan is from 1 - 5 years, depending on the repaying
capability of the loan applicant.

Q: What are the factors that are taken into consideration while checking an application for
a loan against property?

The most common aspects that are considered by a lender while checking an application for a
loan against property include:

Existing debts, savings, income, the value of the property that you are interested to pledge,
repayment details, income, etc.

Q: Can one furnish a commercial property as a security for a loan against property?

Yes, one can pledge both residential and commercial properties as securities or collaterals for
loans against property.

Q: Can NRIs avail loans against property?

Yes, most banks offer loans against property to NRIs, subject to verification of all documents.

Q: Does one have to provide any security to avail this loan? If yes, what kind of security?

Yes, a loan against property can be availed only after attaching the property as security. The
property so attached should have clear titles and should be free from encumbrance. It should not
have any existing loan, mortgage or litigation which can impact the title of the property.

Q: What is the maximum loan one can avail against property?

Most banks offer loans ranging from 40 “ 65% of the current market value of the property. Thus
the loan amount depends entirely on the property in question.

Q: What does the market value of a particular property mean?

The market value of a property refers to the estimated amount a particular property can fetch if it
is sold at prevailing conditions.
Q: Can loan against property be availed against property which is jointly owned by
multiple individuals?

Yes, the loan can be availed if all the co-owners of the property become co-applicants for the
loan.

Q: Are self-employed individuals eligible for loan against property?

Yes, self-employed individuals can avail of this loan provided they have sufficient documents
and repayment capacity.

Q: Is prepayment of loan allowed?

Yes, the loan can be prepaid, subject to certain rules as stipulated by individual banks.

Q: Does the property in question have to be insured?

Yes, most banks require the property to be insured before providing a loan.

Q: How does one get back the property pledged as security?

The property pledged as security will be returned back to the owner once the entire loan amount
is cleared and there are no pending dues.

Q: Can a loan against property be availed against rented property?

Loan against property can be availed only against own property of the applicant.