All businesses need funds at some point of time or another, either for day to day working or for business extensions. Funds also become necessary when you plan to take your business to a new level. So what comes first to your mind when you need funds is to sell your personal investments. But this is not the only way out, business loans can be handy when you need funds for your business. A Business Loan is thus an unsecured loan at an interest rate, giving you access to credit that can be paid back over an agreed time along with the interest, without any security against it. Business loans help to keep your business going. A business loan can be used to expand your current business venture or require new machinery or equipment for your enterprise
FEATURES AND BENEFITS OF BUSINESS LOANS
- No need of any collateral, security or guarantors: There is no need of any collateral, security or guarantors for business loans up to Rs.50 lakhs for self -employed businessmen involved in Manufacturing, Trading and Service industry. The loan can be used for business expansion, or to fulfill the working capital requirements.
- Loan tenure: Loans can be repaid within a flexible tenure that suits your requirement ranging from 12 months to 48 months.
- Easy EMI repayment option: The EMIs on business loan can be paid either through cheques or through the Electronic Clearing System (ECS)
- Loan Amount: The business loan amount depends on the annual profit of a business and number of years you are into that business. It also checks the cash flow and other aspects of revenue generation. The bank takes into consideration all these factors and then decides the eligibility of loan amount which you can get. Business loans are available for a minimum loan amount of Rs.3 lakhs and a maximum loan amount of Rs.75 lakhs.
- Interest rate: Business loans are available at interest rates ranging from 15.5%-18.3%.
The following people are eligible to apply for a Business Loan:
- Self-employed individuals, Proprietors, Private Ltd. Co. and Partnership Firms involved in the business of Manufacturing, Trading or Services.
- The business should have a minimum turnover of Rs.40 lakhs
- Individuals who have been in the current business for a minimum of 3 years, with 5 years total business experience.
- Those whose business has been profit making for the previous 2 years
- The business should have a Minimal Annual Income (ITR) of Rs.1.5 lakhs per annum
- The applicant should be at least 21 years at the time of applying for the loan and should be no older than 65 years at the time of loan maturity.
The following documents are required along with your Business Loan application:
- PAN Card – For Company/Firm/Individual
- A copy of any of the following documents as identity proof:
- Aadhaar Card
- Voter’s ID Card
- PAN Card
- Driving License
- A copy of any of the following documents as address proof:
- Aadhaar Card
- Voter’s ID Card
- Driving License
- Bank statement of the previous 6 months
- Latest ITR along with computation of income, Balance Sheet and Profit & Loss account for the previous 2 years, after being CA Certified/Audited
- Proof of continuation (ITR/Trade license/Establishment/Sales Tax Certificate)
- Other Mandatory Documents [Sole Prop. Declaration Or Certified Copy of Partnership Deed, Certified true copy of Memorandum & Articles of Association (certified by Director) & Board resolution (Original)]
A BUSINESS LOAN CAN BE TAKEN FOR THE FOLLOWING PURPOSES:
- Working Capital: Business Loans can be taken for meeting the expenses of daily operations of the business. It helps the business to function till the business starts earning an adequate income. It helps you to keep the business running in the market.
- Business expansion: If your business is earning well and you are planning for expansion then you can apply for a business loan to ensure your firm or enterprise keeps on going strong, and use the loan for leasing a new office space, hiring more workforce, building efficient technological support, procuring raw material, increasing your marketing, etc.
- Buying machinery and equipment: You can also take a loan for the purchase of machinery and equipment, use the machinery for its life and then sell it at its salvage value.
- Infrastructure: Infrastructure is an integral part of any business. It helps you to increase your future prospects and the goodwill. Business loans can be taken for infrastructure as well.
- Inventory turn load: Business loans can fund your purchase of a large amount of inventory to gear up for your busy season and make sure that there is no lag time between demand and supply.
TYPES OF BUSINESS LOANS
- Term Loans: These are short-term, long-term and intermediate loans varying in tenure from 3 years (short-term) to 10-15 years (long-term). These assets can be financed with a term loan- Land and building, building construction, infrastructure creation, renovation, purchase of equipment, machinery, vehicles.
- Overdrafts: This one is a temporary loan, wherein the account holder overdraws from his current account as per agreed terms.
- Working Capital Loans: These loans are availed to meet day to day financial requirements of businesses.
- Cash credit: Cash credits are loan granted in the form of overdrafts against the security of stock in trade/ raw materials. Cash credit facilities is usually secured by pledging current assets of the organization like inventory or receivables. Cash credit facility is ideal for financing working capital – inventory and receivables.
- Loan against property: A loan against property is a loan in which the collateral is a residential or commercial or vacant land. The funds raised by way of loan against property can be used by the business for any purposes including advertising, research, business expansion, staff salary, starting a new business, working capital requirement, capital asset requirement, buying land, etc., Usually there are no restrictions on the application of funds – sanctioned as a loan against property. Hence, the funds can be used for any purpose.
- Loan against shares or financial securities: A loan can be raised against financial securities such as demat shares, mutual fund units, fixed maturity plans (FMP), exchange-traded funds (ETF), insurance policies and savings bonds. The funds raised by pledging shares or financial securities can be used for any purposes.