Taking the plunge into the realm of business financing is often required to unlock the potential for growth and financial stability of a business. However, navigating through the maze of options, whether it’s a loan, line of credit or overdraft, can be a daunting task. The precipitous amount of paperwork, along with the uncertainty of where to begin, can make this world of financing appear overwhelming for business owners.
For business owners in India, the constant struggle to manage cash flow creates an additional burden. Business loans offer a promising way out, giving opportunities to invest in business expansion or address financial obligations.
With this article, we will decipher the complexities around business financing and empower you with the knowledge required to sail through the world of business loans.
What is a Business Loan?
It is an arrangement between a business owner and a bank or other private lender under which the lender lends money to the firm in return for eventual repayment of the principal loan amount along with the interest.
Essentially, a lender extends some amount of money subjected to predetermined conditions. These conditions generally include interest rates, repayment periods, or other relevant factors.
What are the Different Types of Business Loans in India?
In India, different types of business loans are available to cater financial needs of businesses. Here are some common loan types:
Term Loan
Term loans are offered for a specific period of time. Term loans could be used for various purposes such as buying new machinery, expanding existing business or complimenting working capital requirements. Term loans come up with fixed interest rates and regular repayments.
Working Capital Loans
Working Capital is a special type of business loan designed to supplement day-to-day business operations, such as managing inventory, paying employee salaries, or meeting short-term obligations. These loans help businesses maintain healthy cash flow and meet immediate financial obligations.
Business Line of Credit
It is a flexible financing option where the lender offers a certain credit limit that the business owner can borrow as needed. The interest rate is applied to the amount utilised by the borrower.
Invoice Financing
Invoice financing allows businesses to obtain funds by selling invoices to lenders at a discounted rate. This type of financing lets businesses access immediate cash flow by converting their accounts receivable into working capital.
Machinery Loans
Machinery loans are designed to finance the purchase of new machinery or other business equipment. The machinery financed acts as collateral. This makes it easy for business owners to acquire necessary equipment without tapping into their cash reserves.
Microloans
These are small loans often offered to micro and small businesses. Microloans are designed to support the growth initiatives of small businesses.
Export-Import (EXIM) loans
EXIM loans are availed by businesses that are engaged in international trade. These loans provide financing for import and export-related activities. These activities could be anything from working capital for fulfilling orders, financing imports and managing foreign exchange transactions.
Suggested Read: How to Start Export Business in India 2024 | Detailed Guide
Merchant Cash Advance
It is a type of loan that is repaid through a percentage of a business’s future sales. This type of loan is availed on your business’s future earnings. This is less of a loan and more of a cash advance but an alternative to more traditional financing.
Business Loan Eligibility Criteria
| Criteria | Requirement |
| Age | Applicant must be 21 years of age minimum and 65 years of age at the time of loan maturity |
| Business Vintage | Minimum 1 years |
| Annual Turnover | Minimum Annual turnover should be INR 50 Lakhs |
Check: Business Loan Eligibility Criteria in Detail
Documents Required for a Business Loan
The following documents must be submitted by business owners to qualify for a business loan.
| Documents | Requirement |
| For KYC | Individual/Partner/Director – PAN & Officially Valid Documents + Proof of Address (If not as per Officially Valid Documents) Company PAN Card Business Docs – Business Registration Proof + Business Address Proof (if not as per Business Registration Proof) Proprietor/Partner/Director PAN Card, Aadhaar Card, Electricity Bill/Rent Agreement/Passport. Personal Docs |
| For Financials | GSTR Returns for the last year. Audited Financials for the last 2 years. |
| For Business Address Proof | Rent Agreement Electricity Bills |
Business Loan Application Process
The business loan application process could be cumbersome, so it’s better to do some homework before filing the application. Here is the step-by-step process of how you can apply for a business loan easily.
Step 1: Find out what type of business loan you need
It is always better to know what type of business loan you need beforehand along with its terms and conditions. Based on the size of your business, and credit requirements, you can choose from different loan types.
Step 2: Choose the lender
Once you are clear in your head about the type of business loan you need, it’s time to decide on the lender. Compare different lenders, their interest rates and repayment plans. Now it might be time-consuming; alternatively, you can visit OneNDF and sign up as a lender and furnish basic details about your business; OneNDF will give you a list of lenders to choose from specially tailored for your credit requirements.
Another benefit of availing business loan with OneNDF is that everything is under the same roof; you can check your credit score, file multiple loan applications and much more.
Step 3: Loan Application form
Now if you chose to go traditionally and zeroed down on the lender, now is the time to file an application for a business loan. Make sure you fill out the application form precisely since lenders cross-check every minute detail.
Step 4: Prepare Important Documents
You need to keep a check of all the essential documents required or asked by the lender. Documents like past 6 months’ bank statements, KYC documents (of the company as well as of owner), and income tax returns etc. or anything other document asked by the lender. These documents should be self-attested. Once you are done gathering the documents, select the type of loan you required on the OneNDF platform and choose from the recommended lenders. Finally, publish the documents/data and initiate the loan application.
Step 5: Evaluate your Business loan EMI
This is the most important aspect of the whole process, before you do anything, evaluate your EMI. Also, along with EMI, you need to calculate your repayment capacity. For that, you can visit the OneNDF Business loan EMI calculator and get started.
Benefits of Business Loan
Financial Stability
Business loans provide the required funds to strengthen your business, ensuring that operations run smoothly.
Working Capital
A business loan can be used to cover day-to-day expenses, such as employee salaries, inventory and bills, ensuring you have the required capital to keep your business running efficiently.
Business Expansion
You can fund your business expansion plans with a business loan. Business loans allow you to seize the opportunities coming your way.
Technology Upgradation
Business loans can be used to boost your business technologically. It could be used to buy new equipment or technology, which directly enhances your business productivity and improve efficiency.
Inventory Management
To maintain an optimal level of inventory, business loans could be really helpful. When you have sufficient stocks, you are in a better position to meet consumer demand and capitalise on sales.
Cash Flow Management
Seasonal fluctuations can cause cash flow gaps, and Business loans can help you manage that, ensuring you don’t get delayed in your payments and can maintain a robust financial position.
Tax Benefits
In some cases, the interest you pay on your business loan could be tax deductible, giving you a sigh of relief.
Conclusion
This comprehensive guide explored the definition of a business loan, its types, application process and key considerations. Business loans offer financial stability and support the growth of your business. However, a thorough analysis of your business requirement and loan terms is crucial. By seeking professional guidance and comparing options, you can secure a loan that aligns with your business.
Always remember every business is different and unique in its own way, and loans should be approached with careful consideration. OneNDF can help you navigate through the lending landscape confidently and it’s what we tried to do with this guide. Strategic utilisation of funds can propel your business towards new heights of growth. We hope you liked what you read and are ready to disrupt the market with this newfound knowledge.
We wish you the best 🙂
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FAQs
What is the interest rate of a business loan?
The interest rate of business loans in India is between 14% p.a. to 33.75% p.a.
What is the processing fee for a business loan?
Processing fee is the cost you pay for all the paperwork involved in the processing of your business loan. It generally is 2-4% on the principal amount.
Who approves loans?
Underwriter. He/She is a person who approves or disapproves your loan application.
Which applicant is not eligible for a business loan?
A person with an unregistered business is not eligible for a business loan.
How many days after loan is approved?
The typical time it takes for a loan to get approved is one day to one week.
