What is Business loan ?

Businesses need ample amount of investment to fund for start-up expenditures or pay for business extensions. For such purposes, companies take out business loans for their financial assistance. It is a debt which a company is obligated to pay back within a specific tenure according to the terms and conditions of the granted loan. Start-up Business loans can be taken for a variety of essential requirements like starting up a new firm, business expansions, dealer and vendor financing etc.

The major benefit of business loans in India is that it does not require any collateral or security and most of the banks sanction business loans with minimal pre-payment charges. Another benefit is that if there is a failure of repaying the loan, then the business owner will not solely face the burden of penalties but the whole company will be liquidated in order to clear the business loan.

Features of Business Loan

Business Loan is a great option when it comes to expanding your existing Business or starting something new of your own. There are some salient features of Business Loan which you should know before applying for one, which includes the following 

How to Get a Business Loan Approval?

Like any other loan, business loan also analyses your credit worthiness by checking your reliability and repayment ability. For this purpose banks generally look at your past financial history and go through your business records.

The people who are willing to get a start-up business loan might face difficulty in getting a loan because it will be tough for the bank to believe that you are a trustworthy client for them. In that case, banks usually examine your previous financial background, credit history, liabilities, other debts (if any), education and your business plan. A well planned and researched business plan shows your dedication towards your business and the capital money that you have invested in your business personally is also considered by the bank.

Banks are even going to start off schemes of approving loans on the basis of good credit score and loan record of their existing loans. But taking many loans also can also restrict your credit worthiness and would create a negative impact of your liabilities.

Having insurance with your properties and other equipments acts like a cushion for your bank to sanction a loan. As banks are always concerned about the security and risk factors attached to a business, some of the banks even insist their clients to get insurance before approving their application of loan for small business.

Therefore a well-planned and professional plan is always important before approaching a bank for a loan. You should be prepared and do a SWOT analysis of your business plan, and have thorough information about the marketplace of your products and how you are going to lead there.

Banks are also going to focus on medium and small business loans and long term capital loans as well as the expansion of credit amenities to new areas such as less developed cities and states in order to promote the comprehensive growth of such small businesses.

The following is the handy checklist of things business loan requirements; you must keep in mind before applying bank loan for your business:

• You must keep a favourable credit score that is between 700-900 points
• Ensure that you meet the eligibility criteria, business loan requirement and have all the necessary documents ready
• Have sufficient funds ready, in case the lender needs you to put something forward in advance
• As you are applying for business loan, you must maintain an inclusive database of the company’s financial situation and past performance along with its cash flow statement.
• If you are applying for business loan for new business then you must focus on the ideas and presentation.

Setting up a new business or putting a step forward for your existing business is highly ambitious and you need a lot of courage and right things to keep going in this competitive world. With the above checklist, you will be able be go in right direction of acquiring the necessary funding for your business.

Documents Required For Business Loan

 Self Employed

1. Proof of Business – Shop and Establishment Certificate/ Vat Registration Certificate/ Service Tax      Certificate.

2. Last 3 years IT tax returns with profit and loss account and balance sheet duly audited by CA.

3. Existing Loans’ Sanction letters accompanied with repayment track.

4. Business profile on the letterhead of the company.

5. ID/ Age Proof – PAN Card/ Passport/ Signature Proof/ Aadhar Card and Residence Proof – Passport/      Utility bills/ Bank Statements.

6. Cheque of Processing Fee.

 Salaried

Most banks follow the same general rules in terms of document requirement. There may be a few changes in certain cases, in which case, our loan officers will guide you personally to complete the documentation process. Salaried individuals.

1. Form 16 of last 2 years or Income Tax Returns.

2. Salary slips of last 3 months.

3. Last 6 months bank statement reflecting salary credits.

4. ID/ Age Proof – PAN Card/ Passport/ Signature Proof/ Aadhar Card and Residence Proof – Passport/      Utility bills/ Bank Statements.

5. Cheque of Processing Fee.

 Partnership Firm

1. Age proof of all the partners in the form of PAN Card, Passport or Aadar Card.

2. PAN Card of the company.

3. Residence proof of all the partners – Utility Bills/ Passport/Bank statement/ Registered rent      agreement.

4. Proof of Business – Shop and Establishment Certificate/Vat Registration Certificate/ Service Tax      Certificate.

5. Latest 3 years Income Tax returns with profit and loss and balance sheet duly audited by CA.

6. Latest 12 months bank statement of the Company and of the Partners’ Savings Bank Account.

7. Existing Loans’ Sanction letters accompanied with repayment track.

8. Business profile on the letterhead of the company.

9. ID/ Age Proof – PAN Card/ Passport/ Signature Proof/ Aadhar Card and Residence Proof – Passport/      Utility bills/ Bank Statements.

10. Cheque of Processing Fee.

 Private Ltd Co

1. Application form duly filled with photographs of directors.

2. Age Proof of Directors – PAN Card, Aadhar Card, passport.

3. Residence Proof of Directors – Utility Bills/ Passport/Bank statement/ Registered rent agreement.

4. PAN Card of Company.

5. Education Qualification – A professional qualification certificate in case of Doctors/CA/Architects.

6. Proof of Business – Shop and Establishment Certificate/Vat Registration Certificate/ Service Tax      Certificate.

7. MOA, AOA, List Of Directors, Share Holding Pattern of the Company.

8. Last 3 years IT returns with Profit and Loss account and balance sheet duly audited by CA.

9. Latest 12 months bank statement of Company of all current accounts and the same for Director’s      Savings Bank Account.

10. Existing Loans’ sanction letter with repayment track of company and Individual Directors.

11. Business Profile on the Letter Head of the Company.

12. ID/ Age Proof – PAN Card/ Passport/ Signature Proof/ Aadhar Card and Residence Proof –         Passport/ Utility bills/ Bank Statements.

13. Cheque of Processing Fee.

 Eligibility Criteria

• Your age must be in the range of 21 to 65.
• You should be in the business for at least 2 to 3 years.
• While filling the business loan application form, your business partner can be a co-applicant in it.
• Established Business that has been in the operations for more than a year
• Your business should not come under the shadow of blacklisted.
• Business Location matters! The coordinates of your business should not be in the negative location list.
• Personal Credit Score Matters a lot-Whether the business is a sole proprietorship or partnership, lenders consider applicant personal credit score. In a small business, the founder is often the whole and soul, and also the face of business.

Business Loan EMI and How to Calculate It

Different types of business loans can be repaid in different ways. One of the easiest ways to repay a business loan is through Equated Monthly Instalments (EMIs). Your loan is divided into equal fixed sums that are paid on a monthly basis till the full repayment of the loan. An EMI consists of two parts, the principal loan amount and the accrued interest. Small and medium businesses find it easier to repay business loans with EMIs, as the method allows them to fund expensive assets and expansions without straining their smaller operating budgets.

How to Calculate Business Loan EMI?

The Business Loan EMI calculation is done on the basis of a simple formula i.e.
E = P x r x (1+r)n/(1+r)n-1
Here,
‘E’ is the EMI
‘P’ represents the loan amount
‘r’ stands for the interest rate offered on a monthly basis
‘n’ is the duration of the loan
A business loan EMI calculator is a digital version of this formula, that allows you to calculate EMI amount through a web interface. The business loan EMI calculator can help you understand the breakdown of interest and principal loan amount, thus, allowing you to decide the layout of your cash resource planning.

How to Improve the Chances of Getting a Business Loan Approval?

It takes money to make money. Even if you have a great business idea, it will take some initial investment to market it and bring it to fruition. Unsecured small business loans are a popular choice for quick business finance due to their small ticket sizes and faster approval process. However, not every business loan application gets approved, even if you are applying with a financier who has easier lending rules.

In today’s post, we are sharing the bare essentials, which you should get right, to improve your chances of getting a business loan approval

Improve a lacklustre credit score

If your personal and business credit scores are not in order, there is a high chance that your loan application will get rejected. Worst still, you might be offered a loan with exorbitant interest rates, which will only make it harder for you to repay the loan and further diminish your credit worthiness. So, before applying for a business loan, get your credit report and take steps to improve it. In case you have raises a dispute with the credit bureau, wait for its resolution before applying for a loan, otherwise a lender might deny your loan application based on faulty information.

Make your calculations in advance

If you are starting a new business, assess your financial needs and keep an eye out for lucrative business loan deals even if you do not need the funds immediately. Being aware of your business’s exact capital requirements and institutions that cater to your specific financial needs can speed up the loan approval process significantly.

Have a business plan

When planning for a business loan, have a business plan ready to share with the lenders to convince them of your commitment to repayment. The plan should have an executive summary that explains what your business does, and how you plan to make money. Also include a market assessment and data of present business expenditure.

Get the documentation right

A lender will ask for most recent years’ profit and loss statements, balance sheets and cash flow statements, so make sure you have them in order. Apart from this, business incorporation certificates, tax filings and address and identity proofs are a pre-requisite for business loan approvals. Check with the lender beforehand and get the documentation right to speed up your business loan approval.

Apply with FinTech lenders like Afinoz

If you need a fast business loans, apply with a FinTech lender instead of traditional banks and NBFCs. Where bank and NBFCs take up to 10 days to process a loan application, a FinTech firm like Afinoz will authorise loan disbursal within 3 days of application and approval. Moreover, FinTech lending comes with several other benefits like minimal processing charges, low interest rates, flexible EMI options, zero prepayment fees and quick renewals.