Hello,

Guest!

How to Get a Business Loan in 7 easy steps in India?

Updated on: 14 Dec 2021 // 39 min read // Business Loans
Author :(522 posts)
image

Funding for any business is extremely important. When it comes to starting a new business irrespective of its size, it requires a lot of monetary backup in order to function properly. Investing in infrastructure, maintaining it, expanding operations, and installing the latest machinery are some of the most significant things that business owners have to invest in initially.

However, the idea of applying for a loan and learning how to get a business loan may seem intimidating to some business owners in the beginning. If you are wondering how you can take a loan to invest in your business, we have got you covered. But first, let us understand what exactly a business loan is and how it can help us in the long run.

What is a Business Loan?

In simple words, a loan granted for the betterment of any business can be considered a business loan. A business loan helps business owners to meet all the urgent needs of growing their businesses. It is funding support granted to potential business owners and some established businessmen when they require it. Therefore, it is vital to understand how to apply for a business loan.

Business owners can use the loan to upgrade already existing software systems, expand the business from several angles, boost production, enhance the production cost to ensure quality production, and for several other reasons.

Usually, with the loan, a debt is added that the loan taker has to repay afterwards, along with interest. Various year plans let people choose how many months or years they want to repay the interest, and the interest percentage depends on that.

Types of Business Loans:

There are several ways in which business loans are granted in India. Some of the most popular methods are:

  • Term Loan - It is one of the most common types of loans that can be both secured and unsecured depending on the situation. For secure business loans, the tenure ranges from 15- 20 years. On the other hand, for other loans, the tenure ranges between 1 to 5 years.
  • Start-up loan - In this case, the business owners might not be well experienced and have an extensive business past. Therefore, their business potential plays a huge role in this case. The current turnover figures are taken into account while granting this loan. In most cases, young people end up taking this loan to start their business.
  • Working capital loan: These loans are primarily granted as small business loans used specifically to overcome a shortage of cash that a business may be facing.
  • Equipment loan: This is also another option for people who want some financial help to invest in a particular product or equipment for their business. If you are aiming to invest in one or two pieces of equipment for your business, consider applying for this loan.
  • Invoice financing: It has also become a common type of loan. This kind of loan is granted mainly to small business companies who face a time lag between raising invoices and getting the payment from their clients. In order to pay their employees on time, business owners take this loan.

How to apply for a business loan in 2021?

If you are a business owner or someone who is aiming at starting their company, the first and foremost step for you would be to understand how to apply for a business loan. Although it may seem complicated and complex to some potential business owners or even established people in business, it is vital to understand how exactly business loans work and how to get a business loan. 

The major steps that you can follow to take a loan for your business are mentioned below:

  1. Analyse your business demands: The first and foremost step of applying for a business loan would be to analyse and understand whether you qualify for a business loan. Analyse your goals, the demands your business has, and why you should apply for a business loan. Many times, loan proposals get rejected because the owners cannot provide enough proof as to why they are eligible for the loan they are applying for.

Therefore, understand your business demands, your already existing backup and monetary support, and if you think it is a big amount that is needed, go for a business loan.

  1. Get Your credit report: If you are wondering how to get a business loan from a bank, try and get your credit report from free credit bureaus like TransUnion, Experion, and Equifax. Spend some time analysing your credit score. Most of the time, banks prefer granting loans to owners who have a credit score of at least 680 and above. If your credit score does not go beyond 680, consider taking help from a non-profit microlender instead of a bank.
  2. Assess your experience: Lenders often consider how long it has been that you have spent your time in the field of business. Your business past, therefore, has a big role to play here. At the very least, two years of experience are needed if you plan to get a loan.
  3. Analyse your annual income: Assess if your annual income is sufficient to get a business loan. This is something banks analyse before granting you a business loan. Every lender will assess your repayment capacity before giving you a loan. 
  4. Decide which type of loan to take: Spend some time deciding what type of loan it is that will suit your business requirements. If you are new to this field and want to take a loan for your new business, consider applying for the start-up loan program granted by several banks.

If you are already an established businessman who is looking forward to taking some financial help to grow your business forward, consider applying for a government-backed SBA loan or preferably a traditional term loan.

If you are a small business owner who is wondering how to get a business loan, consider applying for the invoice financing loan or any short-time funding that will help you in that specific situation.

  1. Make a business plan: If you are a small business owner or someone who wants to make it big in the business industry in the future, make your business plan and then start looking for small business lenders. 

Preferably some non-profit microlenders or online banks or lenders will be the best fit for you. Microlenders can be the best investors for your business when you are just starting as a business owner, you own a small business, or you cannot get a traditional term loan.

If you already have an established business that wants to take it to the next big level, a bank loan will be the best fit for you in this situation.

  1. Assess your eligibility score: If you are wondering how to take business loan if you are just a beginner, spend time analysing your eligibility score, credit score, how much money you need, and looking around for the best business loan options to apply. At times, it may take up to weeks for your loan to get approved, depending upon how well you meet the lender's eligibility criteria.

Eligibility Criteria

Before applying for any business loan from any lender, it is extremely important to understand the existing eligibility criteria to apply for loans. If you are wondering how to get a business loan, analysing whether or not you qualify as an applicant for a business loan is the first step that you should take if you are planning to take a loan in the future.

The common points you should keep in mind in this scenario are as follows:

  • The applicant must belong to the age group of 25 to 65. If you are under 25 and above 65, you probably are not eligible to apply for a business loan. However, some banks or lenders can also consider your application if you are more than 22 depending on their rules.
  • If you don't have a business past, consider taking the loan from some non-profit microlenders. Banks prefer a history of three years in this field to consider your application for further process. If you are a business owner who has the business going for the last three years or more, you will have no problem applying for a business loan.
  • Income tax returns for your business should be filed for a minimum of 1 year or more depending on the lender and their rules.
  • Enterprises with a minimum annual income of 2 LPA and a minimum turnover of 10 Lakhs are expected when you are applying for a business loan.
  • Details as in single ownership/ partnership, proof of your and your partner's annual income are also required.

Although terms and conditions may vary from one lender to the other, these are some of the most common rules that are followed in almost every banking system.

Documents Required

If you are wondering how to take business loan and are already planning to apply for one, go through the list of important documents required to complete the procedure.

  • Your identity proof is the essential document that will be required by every bank and lender irrespective of your business size and demands. Proper identity proof with proper KYC documents like Aadhar card, pan card, passport, voter card or any other legitimate document should be provided by you while you apply for a business loan.
  • Along with the identity proof documents, you will also be required to provide address proof docs like a passport or your electricity bill/ ration card/ telephone bill/ license documents.
  • Major financial documents like the income tax documents, your annual income report with proof, balance sheet, along with your income details of the past two years of business, are the main documents that you need to provide.
  • Apart from these major documents, you will also need to provide business ownership documents and proof of your single ownership/partnership details. Partnership agreement forms, GST details, and proof of income division documents will also be required.

Best Business Loan Interest Rate in 2021

The business loan interest varies from one bank to the other. As far as this year is concerned, the interest seems to range from 15% to 22%. 

Banks like Kotak Mahindra Bank, HDFC bank, and Axis bank offer loans of up to 50 lakhs to 75 lakhs for the interest of 15% to 17%. On the other hand, IDF First Bank Business Loan plans and RBL bank business plans range from 19% to 22%. Tata Capital, IIFL Finance, Lending art Finance, and Hero FinCorn loan plans offer an 18% interest rate for loans up to 25 lakhs to 40 lakhs.

If you are wondering how to get a business loan, analyse your business demands and your funding while choosing the loan you want to take for your business.

FAQs

✅How do I choose my ideal loan plan?

Do not choose the maximum repayment period over five years. Understand your business demands and choose your plan accordingly.

✅What is the role of GST in business loan plans?

GST has a critical role to play. Banks provide loans to the business owners who pay their GST to ensure maximum business growth.

✅What is the basic turnover requirement to apply for a business loan?

A minimum turnover of 10 Lakhs is expected when you are applying for a business loan.

✅What are the government-backed loan schemes available in India?

Some of the government-backed loan schemes are Standup India, Startup India, NSIC, SIDBI Loan, and Yojna under PMMY.
 

✅Can a 23-year-old apply for a business loan?

Yes, most banks and lenders provide loans to young businessmen who are 22 years and above.

✅What is a good credit score to get a business loan?

The basic credit score is 680. If one has a credit score of 750 or above, it is more likely for their application to be approved than others with lesser scores.