[2022] What is Business Loan? And How To Get?

There are many people in our country who want to start their own business but due to not having enough money they are unable to start the business. Actually , capital is the most important thing to start any kind of business or to expand the business going on earlier. However, for the purpose of starting their business, financial assistance is being provided by the government to the people through schemes. Even now the process of giving business loan by banks has become much easier than before.

In such a situation, if you want to start your business, but you do not have enough money, then you can take a business loan for this. Here you are being given complete information about how to get a loan for business. Along with this , the documents required to take the loan, the interest rate and how to apply are being told.

What is Business Loan?

Business loan simply means loan related to business. Business loan is mainly taken for fulfilling business purposes. Like what type of shop, distributorship or any other type of business you want to start or you already have a business running and you want to increase your business on a large scale but you are short of money. So you can fulfill this need of this money by taking a loan.

Business loan or business loan is the amount taken in the form of loan from bank or any other financial institution for business. Since you get this amount as a kind of loan, which you have to pay back the principal along with interest in a stipulated time.

Important information related to Business loan

We all know that no bank or financial institution provides loan easily. Before giving the loan, that financial institution verifies whether you are capable or not to return the loan amount. Therefore, before taking the loan, you should select the appropriate bank and apply for the loan according to your eligibility so that you do not have to rush to get the loan.

Types of Business Loans.

Talking about the types of business loans, there are many types. As we all know that whether the business is small or big but it always needs funds. Whether the promoter can fulfill this requirement from his own family members or by taking money from the market. Money is required to do business, however, which business will require how much fund, it all depends on the size and viability of the business.

Along with this, it also depends on what is the nature of the business to be done? Is this a more capital intensive business and what is its development stage going to be. Because generally the business needs the most funds when the business is growing. That is, in the event of growth, any business needs funds to expand or grow.

In such a situation, entrepreneurs are interested to know about the types of business loans. So today in this article we are trying to focus the whole article on this topic. So that after reading this article till the end, one can know about Types of Business Loan i.e. type of Business Loan.

Types of Business Loan

Business loan types in India can be many but here we can divide them into two major types on the basis of business activities.

  • The first is a professional loan.
  • The second is trade loans.

However, both professional and trade loans can be secured or unsecured, short term or long term. Therefore, further we will try to know about them in a little detail.

1. Professional Loans:

This type of business loan is provided to professional individuals. That is to say, this type of loan is provided to such professionals who want to set up their own business, these include doctors, chartered accountants, lawyers, etc. This type of loan is provided to these professionals keeping in mind their credit history.

Apart from this, the amount of this type of loan given to an individual by different banks may be different. The professional person’s relationship with that particular bank also contributes significantly in increasing or decreasing the quantum of loan. However, this type of loan is issued on an individual basis.

But in many cases, the loan is sanctioned by the bank or financial institution by keeping non-agricultural land, national savings certificate, government bond, bank fixed deposit and assignment of life insurance policy etc. as collateral. Generally, the above mentioned things are kept as mortgage when the loan to be taken is large i.e. Rs.15-20 lakhs. The following documents may be asked for by the bank to provide this type of business loan to the customers, i.e. professional loan.

  • Detailed plan for utilization of loan amount and repayment method.
  • Business expansion plan.
  • Personal financial statement of last 12 months including bank statement, CIBIL score etc.
  • Property documents as collateral if the quantum of loan is high.
  • If the business of the entrepreneur is established, then Certificate of Incorporation, PAN photocopy, address proof and such documents which prove that the owner of the business is the person taking the loan.
  • Balance sheet and income tax return for the last two years.

2. Trade Loan:

Sole Proprietorship Company, Partnership Firm, Private Limited Company etc. can apply for business loan. That is to say, business loans are issued by banks or financial institutions only for an individual owned company, partnership company and private limited company. This trade loan i.e. type of business loan also has the following three types.

1. Overdraft:
This loan called overdraft is generally issued on the basis of some collateral or security, especially overdraft facility is given on the basis of fixed deposit account. Generally, a bank allows a certain overdraft limit based on the credit history of the entrepreneur, cash flow, relationship with the bank and repayment history. The entrepreneur can utilize the overdraft amount as per the limit sanctioned by the bank. And the interest is charged by the bank on the amount used.

2. Working Capital Loan:
Working capital loans are generally provided to enterprises in the form of regular working capital. This loan is also issued by the bank or financial institution in spite of mortgage of some property as collateral. But it attracts less interest as compared to overdraft. In this type of loan, interest is charged by the bank not on the entire amount but only on the amount utilized.

A working capital loan limit is fixed by the bank and the entrepreneur can use this amount only for a specific purpose. That is, such loan cannot be used for any other mode. This type of loan is sanctioned to be used under a pre-determined purpose and business plan. Banks fully monitor and control this type of loan.

If the prescribed parameters and requirements as per the banking standards and norms are not met by the entrepreneur taking the loan, the bank has full right to cancel the loan. This is the reason why banks feel more comfortable in giving this type of loan to entrepreneurs as compared to other types of loans. So that the entire financial accounting of the business is under their control and the chances of the entrepreneur becoming a defaulter are very less.

3. Term Loan:
Term loan is a standard loan that can be used for personal as well as business purposes. That is, it is a loan that can be used for both personal and business purposes. Under a term loan, the entire sanctioned amount is disbursed which is then repaid through EMIs. Term loan can also be taken in foreign currency which is generally called as foreign currency loan. Such loans are generally issued to exporters who need to deal in different currencies.

How to get loan for business

With the aim of promoting employment, many types of schemes are being run by the government, through these schemes you can get loans. Apart from this, commercial loans are provided by government and non-government banks. However, business loans should always be taken keeping in mind the requirements of the business. Business or business loans are divided on the basis of 3 factors, which are as follows:

  • Business loan under government schemes.
  • Loan from government or non-government banks i.e. bank loan.
  • Business Loan Scheme for Women Entrepreneurs.

1. Business Loans under Government Schemes

For the last few years, the government is providing money to the people to start their own business through various types of government schemes. In which money is being given to people for business through MSME ie Micro, Small and Medium Enterprises. The schemes launched by it especially to promote small business and new startups are as follows

  • MUDRA Loan Scheme
  • Stand Up India Scheme
  • Coir Udyami Yojana
  • Bank Credit Facilitation Scheme
  • NABARD (National Bank for Agriculture and Rural Development)

2. Loans From Government or Non-Government Banks

At present, business loans are being given by government and non-government banks which are as follows

  • Term Loan
  • Working Capital Loan
  • Start-up Loan
  • Invoice Financing
  • Equipment Financing
  • Overdraft

3. Business Loan Scheme for Women Entrepreneurs

Business loans are also given by the government and banks for women entrepreneurs. The bank offers small business loans to women running successful business. Financial Institutions like Banks and NBFCs have launched many types of schemes for women businessmen, which are as follows

  • St. Kalyani Scheme
  • Stree Shakti Package for Women Entrepreneurs
  • Dena Shakti Scheme
  • Udyogini Scheme
  • Women Enterprise Fund Scheme

Eligibility for Business Loan

You can get business loan through bank and government schemes. However, some eligibility has been prescribed according to the rules for taking loan through both the mediums, which are as follows

  • The applicant must be a citizen of India
  • There should be an action plan related to starting a business.
  • Applicant’s age must be between 18 years to 65 years .
  • If you have any type of business already running, then your business should be about 3 years old.
  • You must not have been declared a defaulter by any bank or financial institution.

Documents Required for Business Loan

  • Proof of Identity : Voter ID , Aadhar Card , Driving License , Passport
  • Proof of Residence: Ration Card , Aadhar Card, Passport, Electricity Bill , Telephone Bill
  • Proof of Income: Bank account details of last 2 years
  • Financial Documents: Income Tax Return (for last 2 years), Profit and Loss statement for last 2 years or Balance sheet.
  • Business Ownership: If your business is operated in partnership, then partnership deed for business loan.

Business Loan Interest Rate

If you take a loan under any government scheme, then the interest rate is very low and this interest rate varies according to all the schemes. Apart from this, if you take a loan from the bank, then the interest rate of private banks is slightly higher than that of government banks.

The most important thing is that even before taking a business loan, installments are fixed according to the interest rate according to the amount, that is, you are told this interest rate and the interest rate remains the same till the loan is repaid. Generally, the interest rate for business loans can start from 13 per cent and go up to 48 per cent.

Business Loan Limit

If you want to take a business loan from the bank, then this amount can be more or less according to the business. However, you can take a loan from the bank from Rs 5 thousand to Rs 2 crore. Although the amount of loan depends on the credit profile of the applicant, apart from this, loan providing institutions like NBFCs like financial institutions approve the loan according to your income.

Process to Get Business Loan by Bank

For business loan, after knowing you in any private or public sector bank near you, get information related to taking loan from employees.
after that you By contacting the bank manager , you will have to give information about the loan related to your business.
After this, after filling a loan application form, you will have to attach all the necessary documents and submit it to the bank.
This loan will be passed after the bank has verified all your documents.
After that the loan amount will be sent to your bank account within the given time period.

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