A bright future is something that everyone desires regardless of what financial backup they hold to make it possible. In pursuing a bright future, you need financial stability; for that, you need a stable source of income. Often, people start a business to make it happen but shift it to the back seat in little or no time. No matter how planned you keep your business, you will feel the need for financial support at some point. In such times, one thing that can keep your business going is a Business Loan. You never know at what point your business could go through any bad phase, so it’s better to be ready with the right measurement.

So, if you own a business or are willing to start one, you should keep reading. Here, you will get the answer to all your questions regarding business loan 

What is a Business Loan?

It is a Financial Solution in which any individual or organization borrows a certain amount from any Bank, NBFC or any other Financial Institution. This loan aims to start or expand any business or fulfil any business expense. The loan amount, interest rates, and repayment tenure of this loan are determined on the basis of the borrower’s creditworthiness. 

What are the Benefits of a Business Loan?

• • Lower Interest Rates
  • Expense Flexibility
  • Minimal Documentation
  • No sharing of profits
  • Chance to improve Credit Score
  • No negative effect on ownership 
  • No collateral 
  • Tax Benefits
  • Improved business cash flow
  • Build a Business Credit Profile

Features of a Business Loan 

• • Loan Amount: This is the fixed amount that the borrowers get from the lender. This amount is based on the creditworthiness and turnover of the business. 
  • Interest Rates: The interest rate is the cost of borrowing the money and is expressed as an annual percentage rate (APR). Business loans may have fixed or variable interest rates.
  • Loan term: This is a pre-determined tenure the borrower must follow to repay the loan amount. This can also be manipulated based on the creditworthiness and annual turnover of the business.
  • Repayment Schedule: In the repayment schedule, the lenders outline the frequency and amount of each borrower’s payment to repay the loan. The payment frequency is generally monthly; the rest of the element can be customised accordingly. 
  • Fees and Charges: Apart from Interest Rates, there are several other charges on a Business Loan, such as processing fees, application fees, late repayment fees, etc. 
  • Credit Check: This is an inquiry credit history check of the borrower run by the lenders to ensure their repayment capabilities. 
  • Early Payment Options: Various lenders offer early or pre-pay options on their business loans. With this, the borrower can repay their borrowed amount even before the completion of the repayment tenure. A few lenders also put charges on closing the loan early. 

What are the Required Documents 

The required documents to apply for a business loan differ from lender to lender. However, here are the generally required documents by the majority of lenders. 

In address proof, the basic documents are: 

• • Aadhaar Card
  • Voter’s ID card
  • Driver’s License
  • Rent agreement
  • Utility bill

Note: If the applicant is staying in rent, then the applicant needs to provide a proper “rent agreement.”

If the applicant is staying in their own residence, then the “latest utility Bill”

KYC or Know Your Customer Documents consist of:

• • PAN Card copy
  • Voter’s ID Card
  • Driving License
  • Aadhaar Card

Business Proof, which consists of:

• • GST Registration
  • License Trade
  • Drug License
  • Registration Under Shop ACT, etc

Income Proof Documents, which consist of:

• • Profit and Loss Balance sheet 
  • To be audited Accounts, along with the Auditor’s report.
  • Partnership Deed (if partnership forms)
  • Articles of Association
  • Memorandum of Association
  • Board Resolution
  • Company or Partnership firm identity like PAN Card.
  • If a company has a commercial vehicle, then National and State Permit.

What are the Eligibility to Apply for a Business Loan 

• • The eligible entities for a Business Loan are  Individuals, SMEs, MSMEs, Sole Proprietorships, Corporate Entities, Public and Ltd In Companies, Limited LLPs, Retailers, Traders, and Manufacturers involved in services, trading, and manufacturing.
    The vintage of the business must be profitable for a year at least
    The location of the business must be the same for a year at least
    CIBIL score of the borrowing entity must be a minimum of 700 
    The minimum annual turnover of the business must be 3 Lacs