A business loan may be a secured loan or an unsecured loan given by a bank or financial institution to a business owner who has applied for it to meet the urgent needs of his or her growing business. In the case of unsecured loan, the borrower does not need to provide any collateral.
The business loan can be taken for any purpose related to the business – may be for purchasing machinery or equipment, for purchasing inventory, for promotional campaigns, for increasing working capital or simply for accumulating amount intended for a recent business opportunity that outweighs the potential debt.
Such loans are repaid to the bank by means of equated monthly installments or EMIs which is determined by taking the loan amount, interest rate and tenure into consideration.
In India, an individual may be eligible for a business loan or an entrepreneur loan if he or she meets the following conditions:
|Age limit||· 21 years to 65 years (may vary from bank to bank)|
|Loan amount||· Any amount depending upon the lender, loan type and the borrower as well the city in which the business is carried out.|
|Financials||· The turnover of the business needs to show an upward trend with every following year.
· The business should have earned cash profit for three consecutive years (for small businesses, the time period need not be 3 years).
· The balance sheet must be audited and authenticated by a registered Chartered Accountant.
· The business owner must have filed his ITR for at least a year.
|Entity of business||· The business can be a proprietorship business, a partnership business, private limited business.|
|Existing loans if any||· Existing loans if any may reduce the owner’s eligibility of availing a new loan.
· So it is better to clear off existing loans and then apply for new ones.
|Minimum years of business||· For businessmen, the business must have run successfully for three consecutive years.
· For self-employed professionals – tenure of current business should be more than 12 months.
|CIBIL Score||· Good credit histories with a CIBIL score of 750 and above.
· In case of the score below this, the business loan amount will decrease significantly or the borrower might be denied any loan.
Documents required for availing a business loan
- Business Financials
- Trade License, Business Registration Certificate, Sales Tax Certificate
- Documents showing ownership of the borrower
- In case of a partnership, a certified copy of Partnership deed
- Balance Sheet and P/L account of latest three years
- Latest three years’ Income Tax Returns along with computation
- Bank Statements
- Latest one-year bank statement (Savings as well as Current)
- Account statement for existing loans if any
- Latest one year statement of existing loans if any (Car loan, personal loan, etc)
- Address Proof and Photo Identity Proof of the borrower
- Anyone among Aadhaar card/Passport/Driving License
- PAN Card
- 2 Passport photo of the borrower