WHAT IS BUSINESS LOAN ?
The business loan meaning is a loan product offered to business owners who have a running company but require external funds for operations. The investment cover expenses such as employee salaries, rent, buying equipment, or expanding the business in other cities.
Lenders analyze the business owner's creditworthiness through factors such as credit score and business turnover. However, entrepreneurs or business owners are legally bound to use the loan amount only to cover business expenses and not use the loan amount to cover personal expenditures.
Repayment is also a factor in the business loan definition, as the lenders charge interest on the principal amount the borrower must repay in full within the loan tenure.
Types OF Business Loans
No business has a similar capital need as they belong to multiple industries and sectors. Lenders ensure that they effectively cater to the capital needs of every type of business through specialized business loans. Here are some of the most common business loans available to business owners in India.
Term Business Loans:They are straightforward, short-term loans without additional benefits. Such loans have a short loan tenure of 1-5 years. These loans require the borrower to mention the purpose of the loan, and the amount sanctioned is based on the business credit history.
Working Capital Loans:Similar to term loans, working capital business loans are also short-term and come with a tenure of 1-5 years. However, business owners avail of such loans to fulfill short-term and current liabilities such as daily or approaching expenses such as rent or employee salaries.
Commercial Business Loans:Commercial business loans cater to the capital needs of businesses with high turnover. These loans offer immediate capital up to Rs 50 lakh with a 3-5-year tenure. The loan is for enterprises that have been at least running for a year and are profitable.
Startup Loans:As startups have become widely popular in India, lenders offer startup loans to entrepreneurs who want to expand their current businesses. These loans do not require pledging any valuable asset as collateral and offer repayment flexibility to budding entrepreneurs.
Equipment Financing:This business loan allows business owners to raise immediate capital to buy equipment such as machinery or the latest technology. However, entrepreneurs can also use the loan for other business expenses.
Eligibility Criteria For Business Loans
The business loan details require fulfilling the set eligibility criteria, including the following.
- Established enterprises operating for more than six months at the time of application.
- Minimum turnover of Rs 90,000 in the last three months from the time of application.
- The business does not fall under any category or list of blacklisted/excluded businesses.
- The office/business location is not on the negative location list.
- Charitable organizations, NGOs, and trusts are not eligible for a business loan.
Documents Required For NBFC Business Loan
Here are the documents Proprietorships, Partnerships, and Pvt. Ltd/ LLP /One Person Companies will need to submit to complete the application for a business loan:
- KYC documents – Identity proof and address proof of the borrower and all co-borrowers
- PAN Card of the borrower and all co-borrowers
- Last (6-12 Months) months' bank statement of the main operative business account
- Signed copy of standard terms (term loan facility.
- Additional document(s) for credit assessment and processing loan requests
- GST Registration
- Previous 12 months’ bank statements
- Proof of business registration
- PAN Card and Aadhar Card copy of the Proprietor(s)
- Deed copy and company PAN Card copy in the case of partnerships
CONCLUSION
Business Loans can be a great way to get the funds you need to grow your business. They offer benefits like competitive interest rates, a chance to build a good credit score, and potential tax savings.
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