Generally, people need funds to raise funds for their businesses. Learn how you can raise business loans from various sources and check business loan eligibility.
There are ample opportunities for getting a loan for business purposes in India, whether loans are provided by the government of India or loans from banks and financial institutions. Let us look deeper into the various sources for getting a business loan and check business loan eligibility. Let’s firstly get to know about business loans provided by governments and check business loan eligibility. The government of India has developed several credit programs, including the following, to support the MSME (Micro, Small, and Medium Enterprises) sector, which is most important to the growth of the Indian economy.
What Is a Business Loan?
A business loan is financial assistance provided by banks, financial institutions, or alternative lenders to individuals or companies to support their business operations or investment needs. It is specifically designed to meet the funding requirements of businesses, whether they are small startups, established enterprises, or even self-employed individuals.
Business loans are typically used for various purposes, such as expanding operations, purchasing equipment or inventory, funding marketing campaigns, managing cash flow, or investing in business growth opportunities. The loan amount, interest rate, repayment terms, and eligibility criteria vary depending on the lender and the specific loan product.
Business Loan Eligibility Criteria
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For a Private Limited or Limited Company
- For loans up to ₹15 Lakhs, the business should earn more than ₹1.5 lakhs annually
- For loans over ₹15 Lakhs, the business should earn more than ₹3 lakhs annually.
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For Self-Employed Professionals
- The professional must have the necessary skills and qualifications for the loan. You can see a list of requirements online
- Medical professionals, engineers, chartered accountants, and management consultants must show documentation of their credentials.
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For a Proprietorship Firm or Limited Liability Partnership
- The business must offer profit and loss statements that satisfy the minimum standards set by the lender
- We evaluate the borrower’s ability to repay the loan before approving the business loan.
Other Eligibility Criteria for a Business Loan
|
Criteria |
Requirements |
| Age | Minimum 21 years at the time of loan application |
| Maximum 65 years at the time of loan maturity | |
| Eligible Entities | Individuals, Startups, MSMEs, Sole Proprietorships, |
| Partnership Firms, Public and Private Limited Companies, | |
| Limited Liability Partnerships, retailers, traders, manufacturers, | |
| Other non-farm income-generating business entities | |
| Entities engaged in the services, trading, and manufacturing sectors | |
| Business age | Minimum 1 year or above |
| Business experience | Minimum 1 year, business location to remain the same |
| Annual Turnover | Shall be defined by the Bank/NBFC |
| Credit Score | 750 or above (Preferred by most private and public sector banks) |
| Nationality | Indian citizens |
| Should not have defaulted on any previous loan(s) with any lender | |
| Additional Criteria | Applicant must own either a residence, office, shop, or godown |
Document Requirements for Business Loan
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Photo ID Proof
- Passport size photographs
- Aadhaar card
- Voter ID or Passport.
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Bank Statements
- For the previous six months, the borrower’s certified bank statements
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Proof of Business
- Sales tax certificate or a business license
- Ownership records
- Deeds for a sole proprietorship or a partnership
- Two most recent fiscal years’ worth of income tax returns
- For the last two fiscal years’ worth of profit and loss statements
- Financial statements from prior years
1. MSME Business Loan within 59 minutes
Usually, when they most need the money, people struggle to raise funds for their enterprises at the appropriate time. With this post, we’ll show you how to obtain business loans from various sources and determine whether you match the requirements for loan approval. People frequently struggle to raise capital for their businesses at the right time, when they most need it. In this article, we’ll explain how to apply for business loans from a range of sources and check to see whether you meet the criteria for loan approval.
Benefits of MSME Business Loan:
- Minimal documentation and quick process
- Technology based loan driven system
- Security of data as government sources provide high-end privacy protection
Pradhan Mantri Mudra Yojana (PMMY)
Micro Units Development and Refinance Agency Ltd i.e., MUDRA provides re-financing support to banks and NBFCs for lending to Micro units having loan requirements up to 10 lakhs under the scheme of Pradhan Mantri Mudra Yojana(PMMY). It covers 3 categories i.e., Shishu, Kishore, and Tarun to signify the stage of growth and development.Presently, the purpose of Mudra Loan is not to develop small units but it is offered as:
- Business loan for vendors, traders, shopkeepers, and other services activities
- Working capital loan through Mudra Card
- Loan for agricultural or farm vehicles
- Equipment finance for micro units
Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGFMSE)
This is a government business loan scheme launched by the Indian government allowing collateral-free credit to the MSME sector. It includes both existing as well as new enterprises. The guarantee cover is available to the extent of a maximum of 85% of the sanctioned amount of the credit facility.
Business Loan From a Non-Government Organisation
After learning about government-provided Business loans and their eligibility conditions, we now move on to other business loan opportunities and review their eligibility standards.
While lending, all lenders adhere to these 4 fundamental principles. Every businessman should be aware that there are four essential eligibility requirements to pass before applying for a loan.
1) Credit Rating
Your credit rating shows your loan repaying capacity. A good CIBIL score is key and improves your chances of getting an unsecured loan or loan on better terms and conditions. There are a few measures you can take to improve your rating.
- Avoid Default on credit card bills and other repayments
- Clear all your existing debt on time
- Aim to borrow a mix of credit options, such as secured and unsecured
- ensure that your credit report is accurate and updated at a regular interval
2) Annual Revenue
To get business insight, every money lender looks forward to an accurate financial statement of the past 2 years on hand. Use the same to analyze business position loan repaying capacity like current ratios to analyze business loan repaying capacity. This signifies if the current ratio is greater than on company’s ability to pay all its bills and inventory turnover ratio, operating cash flows that specify business. The lender calls income tax return to verify your financial statement.
3) Updated Business Plan
every lender is eager to know about your vision goals and business plan to analyze the risk involved in the business. At this step, projected financial statements and financial report
4) Additional Collateral
Each lending source must reduce the risk they take while extending credit. One way they accomplish this is by obtaining an additional financial guarantee that, if your company is unable to make its payments, will be used to cover the advance. This is typically done with an organization’s accounts receivable, hardware, or other easily commoditised resources. One of the additional options for a business credit might be for the owner of the company to guarantee their credit personally or make additional guarantees like personal land or other financial assets.
One can apply for a business loan if you fit the following criteria:
- Individuals working for themselves, business owners, private limited corporations, and partnerships working in the manufacturing, trading, or service sectors
- The company should make at least ₹40 lakhs in revenue
- people with a minimum of 3 years of expertise in the current industry and 5 years’ worth of overall business experience
- Those whose businesses have generated profits during the past two years
- The company should make at least ₹1.5 lakhs (Minimum Annual Income, ITR) annually
- The borrower must be at least 21 years old when applying for the loan and not more than 65 years old when it matures.
FAQs
What is the criteria for a business loan?
For a business loan, you usually need:
✷ A legal business like a sole proprietorship, partnership, or company
✷ It should have been in operation for 1-3 years at the very least
✷ incoming funds sufficient to repay the loan
✷ Your CIBIL score and credit history are important
✷ According to the loan and the lender, you could need to provide collateral or a personal guarantee.
Which bank is best for a business loan?
The bank that is best for a business loan can be different for each person. It depends on things like interest rates, how long you can borrow the money, who can get the loan, and how good the bank's service is. Before choosing a bank, it's a good idea to research and contrast several.
Can we get a business loan on salary?
Business loans are usually not given to people based on their salary. These loans are meant for individuals or entities that have a business or make money from a business. The loan is decided based on the business's finances and if it can be trusted, not on the person's salary.
What is the minimum CIBIL score for a business loan?
Different lenders have different rules for the lowest CIBIL score needed for a business loan. Usually, a CIBIL score of 650 or higher is good for getting a loan. But some lenders might want a higher score, so it's better to ask them for their specific requirement.
What is the business loan interest rate?
The interest rate for a business loan changes depending on the bank, how much you borrow, how long you borrow it for, and your information. You can get in touch with Vakilsearch to resolve all your queries regarding the business loan.
What is the maximum amount of a business loan?
The most money you can get for a business loan depends on different things like the bank's rules, how good your credit is, your business's finances, and if you have collateral. Banks have different limits, but usually, business loans can be from a few lakhs to crores of rupees.
Which loan has a lower interest rate?
The loan with the lowest interest rate is determined by a number of factors, including the lender bank. Loans with collateral typically have interest rates that are lower than loans without collateral. Compared to personal or corporate loans without collateral, home loans and loans secured by property frequently offer cheaper interest rates.
How to take a bank loan for a business?
To get a bank loan for your business:
✷ Determine loan requirements
✷ Research and compare loans
✷ Prepare business and financial documents
✷ Submit loan application to chosen bank
✷ Bank evaluates and assesses creditworthiness
✷ If approved, review and finalise the loan agreement
✷ Fulfil additional requirements
✷ Loan amount disbursed to business account.
What are the documents required for a business loan in SBI?
For a business loan application at SBI, common document requirements include a completed application form, KYC documents, proof of business existence, financial statements, bank statements, income tax returns, projected financial statements, collateral documents (if applicable), and other requested documents based on specific loan requirements.
Are these documents mandatory for every business loan application in SBI?
The papers needed for a loan can be different depending on how much money you want to borrow, the type of loan, and your own information. SBI might ask for more papers or sometimes they might not need some of them, depending on their rules and how they decide about your loan.
Can I apply for a business loan in SBI without collateral?
Yes, SBI has different types of loans for businesses, some need collateral and some don't. The documents needed may change depending on the loan type. If you don't need collateral, you may not have to give any. But if you want a bigger loan or have more risk, SBI might ask for collateral or extra security.
Can I apply for a business loan in SBI if my business is newly established?
SBI gives loans to businesses that are already running and to new businesses too. The papers needed might be different for new businesses, and SBI might also look at things like the business owner's experience, if the business can succeed, and future plans. It's a good idea to ask SBI about what they need for loans to new businesses.
Can I submit digital copies of the required documents for a business loan in SBI?
Yes, You can send SBI the documents they need for a loan online. You can scan the papers or use electronic copies and send them through their website or follow their instructions.
How can I ensure that my business loan application documents are complete and accurate?
Make certain you have all the documentation required for a loan. Make sure to thoroughly review them, correctly complete the form, and ensure the accuracy of your financial statements. To ensure everything is correct, you might seek assistance from professionals like accountants or financial consultants.
Conclusion
In this article, we have had a glimpse about all popular non-government as well as available government loan schemes with which you may get some help. Also, check your eligibility and requirements for the business loan before directly applying for the same.
