The majority of business owners are looking to avail funds for their business. As a result, demand for business loans has increased over time. So, if you are planning to apply for a business loan but are not sure if you should, read this article and get answers to all your queries.
Q.1. What is a Business Loan?
A business loan is another form of financing product that allows businesses to meet their short term business funding needs. It aids borrowers in a variety of ways, including business expansion, inventory purchases, staff wage payments, machinery purchases, and more. Another advantage of this loan is that it may be customised to meet your specific business requirements.
Q.2. How can I apply for a business loan?
Business owners can now apply for a business loan from the comfort of their homes or office. If you have any concerns as a business owner and don’t want to apply online, the lender also has an offline application option.
Offline Application Process
- Visit the branch or outlet of your selected lending institution.
- Connect with the branch’s executive to discuss your needs and get answers to your questions.
- Request an application form and complete all essential fields.
- Submit all the necessary documentation.
- The lender’s representative will evaluate your application, and if found satisfied, the funds will be credited shortly to your account.
Online Application Process:
- Conduct extensive research on various lending institutions’ interest rates and offers.
- Go to your desired lending institution’s official website.
- Go to the business loan page, and click on the ‘Apply Now’ icon.
- Fill in all the essential fields.
- Share your basic documents.
- If your details match the lender’s minimum qualifying criteria, one of their representatives will connect you to process your application further.
Q.3. What are the minimum qualifying criteria to apply for a business?
Business loan eligibility criteria are not that stringent. You can easily acquire this loan if you meet the following pointers.
- Who can apply?
Self-employed professionals, partnership firms, public limited companies, sole proprietorships, private limited companies, Hindu Undivided Family (HUF), trust and societies can apply for business loans.
- Business experience:
Your business must be at least five years old if you want to acquire a small business loan.
- Servicing industries:
Pharmaceuticals, electronics, packaged foods, chemicals, industrial paper, textiles, IT-enabled services, farm equipment, defence suppliers, and a few more servicing industries can apply for this loan.
- Minimum income
Your business must be profitable.
Q.4. What is the minimum and maximum amount that I can borrow through a business loan?
The minimum and the maximum fund value differ from one lending institution to the next. However, maximum lenders offer a business loan in the range of Rs 5 lakhs to Rs 25 lakhs. However, bear in mind that the amount of loan depends upon certain factors such as your credit history, income, and a few more.
Q.5. What are the factors that affect my business loan approval?
In order to acquire a business loan, you must be perfect on certain parameters that are outlined below.
- Nature of business: To get instant approval, make sure you are not involved in any illegal business. In addition to that, the seasonal business also slims your business loan approval chances.
- Business credit history: Business credit history is also an influencing factor when it comes to business loan approval. Make sure you have not skipped the EMIs of your existing loan and don’t have any loan default to your name.
- Business turnover: While applying for this loan, make sure your annual turnover reflects a positive number. If it’s not, try and improve your company’s sales and revenue numbers.
- Business debt-to-income ratio: If you are burdened with too many debts, pay them off first. This is because your business loan application will be approved if your debt-to-income ratio is less than 50%.
- Business plan: Before approving a business loan, financial institutions may require applicants to produce a business plan. As such, keep your business layout ready while applying for this loan.
Q.6. Is it necessary for me to put my business assets up as collateral in order to get a business loan?
Business loans are unsecured forms of financing that are designed to meet your short term business funding needs. However, if you are a first-time borrower whose business has yet to get traction in terms of profitability, the lender may need you to pledge your company’s assets as security. Loans backed by collateral reduce credit risk and the likelihood of default.
Q.7. What is the maximum tenure for which I can obtain a business loan?
Unsecured business loans are available for a short duration. When you apply for this loan, you can choose from a variety of flexible terms up to 36 months.
The questions listed above are some of the most popular ones that borrowers ask lenders about business loans. However, if you have any concerns that are not addressed above, please leave a comment at the end.