The foremost priority of any entrepreneur is to see his/her business grow, expand and flourish. To fulfill this desire, business owners opt for business loans and meet their financial requirements. However, getting instant funds is not always possible, as banks and NBFCs take their time in deciding whether to sanction loan or not.
Business loans are majorly availed for purposes like business expansion, purchase of machinery or plant, investment in infrastructure, hiring staff, maintain inventory, etc. Further we have discussed all the relevant aspects of business loan for in-depth understanding.
Business loan interest rates start from 14.99% onwards which also depends on the eligibility of the applicant:
|Bank/NDFC/Fintech||Interest Rate (p.a.)|
|ICIC Bank||16% onward|
|HDFC Bank||15% onward|
|Yes Bank||10% onward|
|Axis bank||2% onward|
|Aditya Birla Bank||18.5%-22%|
|IDFC Bank||22%||kotak Bank||16.00%|
|TATA CAPITAL Finance||17% onward|
|RBL Bank||17% onward|
|Panjab National Bank||12.65%|
|AU Small Finance Bank||20%|
|Ujjivan Small Finance Bank||19%|
|Capri Global Finance Ltd.||10.5%|
|Utkarsh small finance bank||23%|
Minimum age – 25 years
Maximum age – 58 years
Business Loans are offered to the following entities:
Business Turnover, Operation History, Business existence, credit score and profitability criteria are defined by the respective bank and NBFC.
Fixed Interest Rate
Business Loan Interest Rates are mostly fixed, which means the Interest Rate will not change for the entire loan tenure. The business loan interest rate offered by banks and NBFCs starts at 14.99% onwards and can go up to as high as 48% onwards, depending upon the loan amount or applicant’s requirements.
The loan amount that one can avail in business loan can be up to Rs 2 crore and even more depending on the requirement of the business. The loan amount mainly depends on the financial credibility of the applicant and financial institutions check the eligibility of the applicant before lending the amount. Moreover, financial institutions like banks and NBFCs review the applicant’s credit history/score, Identity proof, business location, business existence, income details before loan sanctioning.
Collateral Free Loan
Business Loans being unsecured loans do not require any collateral from the applicant. However, there are specific and very few loans in which plant, machinery or raw material need to be provided as collateral. Applicant does not require providing any asset like car or house to avail business loan.
Flexible Repayment tenure
The loan applicants enjoy flexible repayment tenure that goes up to 5 years, making it more preferable over other loans. The applicant also have an option of loan pre-payment in which he/she can foreclose the loan by paying some additional charges defined by the respective bank or NBFC.
Invoice discounting is a financial instrument offered by banks and NBFCs. Bill discounting is a source of working capital finance for the seller of goods on credit. it is a discount which, a financial institution takes from a seller’s customer. Through the payment being made by letter of credit, buyer has the option of buying goods from the seller. Bills that come under bill discounting are termed as ‘bills of exchange’.
Letter of Credit
Letter of credit is a payment instrument used mainly in international trade in which bank provides monetary guarantee to enterprises which deal in import and export of goods. Letter of credit is used for both import and export of goods. Enterprises doing businesses overseas have to deal with unknown suppliers and they require assurance of payment before performing any transaction. Therefore, letter of credit is important to provide payment assurance to the suppliers or exporters.
Loans for Self-employed Entrepreneurs
This is the most popular category among all as the loans for self-employed entrepreneurs are taken in large numbers. The loan amount can range anywhere between Rs. 50,000 being the minimum and can reach up to 10 crore. The interest rate offered depends on the financial history of the applicant and is decided by the lenders as per their discretion.
An overdraft means overdrawing money from ones’ current/savings account. In simpler words, an account holder takes out more money that has been deposited in the account. An agreed rate of interest will be charged, if the overdrawn amount is within the limits of a preceding agreement.
Currently many types of term loans are available, such as short-term loan, long-term loan and other intermediate loans. An entrepreneur can avail these loans according to his/her requirements and economical position. Mainly the loan tenure for a short term loan is 12 months and for long-term loan it goes up to 5 years.
Term loans are divided into two parts, unsecured business loans and secured business loans. In secured loans, the collateral or security can be a certain property, machinery or a business ground and they will usually possess lower interest rates as compared to an unsecured one. Most of the business loans are unsecured loans and do not require any collateral or security to be submitted to banks or NBFCs.
Working Capital Loan
Working Capital Loans are are used to overcome the day-to-day financial requirements of enterprises. The daily expenditure of enterprises include paying-off salaries, buying raw materials, paying rent, undertaking trainings, etc.
Below mentioned is the detailed table that will help in understanding the latest interest rates, processing fee and loan amount of business loans offered by popular financial institutions:
|Bank/NBFC /Fintech||Loan Amount (Min.-Max.) in Rs.||Repayment Tenure (Months)||Interest rate|
|HDFC BANK||75,000||50 lakh||6-48||15% onward|
|ICICI Bank||1 lakh||40 lakh||6 - 48||16% onwards|
|Kotak Mahindra Bank||5 lakh||75 lakh||6 - 48||16% onwards|
|RBL Bank||2.5 lakh||20 lakh||12 - 36||17% onwards|
|Tata Capital Finance||3 lakh||50 lakh||12 - 36||17% onwards|
|Yes Bank Working Capital||30 lakh||3 Crore||As per applicant's profile||10% onwards|
|Axis Bank||50,000 thousand||50 Lakh||As per applicant's profile||11.20%-16.30%|
|Panjab National Bank||50,000 thousand||15 Lakh||60||12.65%|
|IDFC Bank||3 Lakh||75 Lakh||6-36||22%|
|Mahindra Finance||1 Lakh||10 Lack||36||13-15%|
Proof of ownership of the possessions used for business activities
Like any other loan, business loan also analyses an individual’s creditworthiness by checking the repayment capability, business records, financial history and stability.
The following is the handy checklist of business loan requirements; you must keep these things in mind before applying to bank for a loan:
If you are applying for a loan for new business then you must focus on the ideas and presentation. With the above checklist, you will be able be go in right direction of acquiring the necessary funding for your business.
Business, be it big or small, is always in need of funds. Whether the promoters pool in money or raise money from the market depends on the size and business viability. It also depends upon the nature of the business – is it capital-intensive and what is its stage of development, in terms of inception, growth or maturity? Usually businesses need funds the most in the growth stage which stabilizes in a mature business with only depreciated capital and working capital needs.
Professional loans are extended to self employed professionals such as doctors, chartered accountants and lawyers, based on their individual credit history.
Trade loans are facilities used by importers, exporters and domestic traders. They are short term in nature and involve a borrower and lender.
Working capital loans are usually provided to businesses as regular working capital. This loan is also against collateral and has a lesser rate of interest than overdrafts.
Term loans are the standard type of loan that can be for both personal and business purposes. The entire amount in a term loan is disbursed and is EMI (Equal Monthly Installments) based for a specific pre-defined tenure.