BUSINESS LOANS

Business Loan is the one great way to increase financing towards various business needs may it be for
business expansion, add capacity/equipment/inventory, event, project, staffing etc or even acquire a
competitor. You can borrow up to 5 crore on a flexible tenure or a fixed interest rate.

Features of Business Loan

1. Business Loans up to ₹ 5 Crore
2. Fast Loan Processing
3. Fast Turnaround Time and Disbursals
4. No collateral required
5. Flexible Repayments

Benefits

Here are the key benefits of taking a business loan:-

1. Expansion
2. Fast processing
3. Preserving your ownership
4. Streamlining cash flow
5. Improve your credit score

Eligibility Criteria for Business Loan

 Eligible Age – The main applicant should be minimum of 25 years of age & should be no older
than 65 years at the time of loan maturity.

 Income Tax Returns (ITR) – Banks evaluate your monthly income and repayment capacity based
on details submitted in the ITRs. To get a business loan, it’s mandatory that regular ITRs is filed
for the past few years. Banks consider borrowers who have filed ITRs of 2 years or more as
eligible to get a business loan.

 Revenue / Turnover - Turnover is the net sales generated by a business, while profit is the
residual earnings of a business after all expenses have been charged against net sales.

In case of professionals, this sales or revenues is measured in terms of Gross Annual Receipts.
Most banks and NBFCs ask for a minimum annual turnover of ₹ 1 Cr to be eligible for business
loans without collateral. However, there are a few NBFCs and banks which lend to businesses or
self employed with turnover of less than Rs. 10 lakh as well.

 Business Vintage and Growth – A very important factor that is considered by Banks and NBFC
while deciding offering of Business Loan is Business vintage and growth. Bank or NBFC gets an
 assurance that your business is authentic, stable and can generate profits to repay their loans.
Banks typically look for a business stability or profitability of minimum 3 years for self employed
professionals. In case of other businessmen, banks and finance companies require a minimum
business continuity or existence of 5 years Banks and NBFCs also specify the minimum growth
rate of 10-15% in sales or turnover for the last 3 years to be eligible for a business loan.

 Banking Stability – Your Bank account stability suggest your repayment capacity based on which
Banks and NBFCs decide the loan amount to be offered. Bank statements of minimum 6 months
of your operational banking accounts suggest your average account balance. Banks will also
consider your outbound and inbound cheque bounce information to take a view on your credit
track record.

Points to consider before applying for Business Loan

 Rate of Interest – Rate of Interest on business loan depends upon your business. Some of the
factors on which rate of interest depends upon type of industry, profile of customer, previous
loan payment track, turnover, banking transactions etc. Current rate of interest on business loan
starts at 16%.

 Processing fees – Most banks/NBFC’s charges minimum processing fees of 2% to 3% on loans.

 Insurance premium - Most banks give insurance coverage to the owner of the company to
protect the financial risks in case of any emergencies, since these loans are unsecured loans, it is
advisable to take an insurance policy like life and accidental insurance by the name of the
borrower when availing a loan.

 Prepayment and foreclosure – When you want to repay your loan partially before time, it’s
called part prepayment. In case you decide to pay the entire loan amount before time, it is
called foreclosure. Banks typically levy prepayment or foreclosure charges in such situations and
these can be up to 5%.

Frequently Asked Questions

1. How much time it takes to get a loan for business from banks and NBFCs?

The time taken required to process a business loan depends upon many factors like, timely
submission of complete documents, verification of business and residential addresses and so on.
However disbursement of loan may take up to 15-20 days depending upon Banks/NBFC’s.

2. Does business loan carry floating / fixed rate of interest?

Generally business loans carry fixed rate of interest as the tenure is generally very small. You need
to check carefully the terms and conditions while singing application form.

3. How can I calculate my EMI?

 Nowadays, EMI is calculator available on website of Banks/NBFC’s. However you can also calculate
EMI using the simple formula: E=P*r*(1+r)*n(1+r)*(n-1)

Where,
‘E’ is the EMI
‘P’ represents the loan amount availed
‘r’ represents the monthly interest rate
‘n’ is the duration of the loan

4. Can I change due date of my EMI ?

Yes. The due date of the EMI payment can be changed with written request to the lender.

5. Are small businesses eligible for business loans?

Some of the new NBFCs have started offering business loans without collaterals for smaller businesses,
though the rate of interest on such loans tend to be higher than that offered by banks. However most of
the top public sector and private sector banks give small business loans in India under various
government schemes like Mudra loan, CGTMSE etc. Apart from government schemes, select banks and
NBFC’s also offer unsecured loans to small businesses with an annual turnover of Rs. 1 crore and above
based on multiple parameters.

6. What should be the applicant’s age to apply for business loan?

Borrower should be at least 21 years old and not more than 65 years of age.

7. Does CIBIL history affect business loan?

Cibil history has a major role to play in approval or rejection of a business loan. Banks may reject your
loan application if you do not have a CIBIL history or poor CIBIL. In these cases, Banks/NBFC’s may offer
loan with high rate of interest.

8. What factors affect business loan rate of interest?

Rate of Interest rate business loan generally can be affected by 3 main factors:

 Higher the loan amount, lower will be the rate of interest

 Higher the business turnover, lesser will be the interest rate
 Longer time in business can avail you loan at lower rates

9. Can EMI be reduced on business loan?

Bank offers facility of part prepayment or full prepayment through which loan EMI can be reduced.
Generally prepayment after is allowed after repayment of 6-12 EMI’s. So, one can easily opt for
prepayment of loan if surplus amount is available and want to lower burden of EMI during the loan
tenure.
 10. How can I apply for business loan?

There are mainly 3 ways by virtue of which you can apply. You can directly visit the bank branch and
meet the sales person, contact a loan agent or apply online at any bank or NBFC’s website.

11. What is the tenure of business loan?

Business loans are generally very short of nature. The loan tenure can be between 12 months to 60
months depending upon Bank/NBFC.

12. Are there any charges associated with business loan?

Apart from rate of interest, banks/NBFC’s charge the following two fees on loan.

 Insurance: As the nature of this loan is unsecured, so lenders always try to ensure that in time of
uncertainties, the loan is covered by a onetime term insurance of the main applicant.
 Processing fee: The processing fee can range between 2% to 3% of the loan amount and can be
negotiated down. Sometimes, these lenders offer exclusive loan schemes such as nil processing
fees for their valued customers.
 Pre-closure fee: As the name suggests this fees is charged when you want to close your loan
before the completion of loan tenure. Pre-closure charges can range from 4% to 5% of the
outstanding loan amount. These charges are mentioned in terms and conditions of your loan
agreement.

13. Does it affect my co-applicant if I default in business loan?

If you fail to pay the loan on time then it will also affect your co-applicant as default in loan will affect
his/her CIBIL rating as well.

14. Will I be eligible for a business loan despite a poor credit score?

Generally Banks don’t offer loans to any one with poor credit score. Yet, there are few lenders who
might offer loan even with a bad credit score with a higher rate of interest along with a co-applicant who
can take the responsibility in your absence.

15. How much time does it take for a business loan to get disbursed?

Business loan disbursement has become hassle free with onset of online facilities. Normally it takes
approximately 15 working days after all the documents are submitted. However some banks and NBFCs
have an arrangement of in-principle approval subject to verification of documents submitted by you and
the results of their field visits making process as short as in a week time.

16. What are my options to repay a Business Loan?

Banks/NBFC’s generally accept repayment by way of Electronic Clearance Service (ECS) or Direct Debit.
However they also take post dated cheques incase of delay/bounce of any EMI/s.