Small Business Loans Overview
Businesses irrespective of their size, all businesses eventually find themselves in need of money in order to operate more effectively. Many banks and NBFCs in the country provide financial assistance to micro, small, and medium-sized businesses that require it in order to retain their working capital, develop their businesses in order to boost production or purchase different types of machinery for greater efficiency.
Businesses irrespective of their size, all businesses eventually find themselves in need of money in order to operate more effectively. Many banks and NBFCs in the country provide financial assistance to micro, small, and medium-sized businesses that require it in order to retain their working capital, develop their businesses in order to boost production or purchase different types of machinery for greater efficiency. People can choose from a variety of reputable financial lenders for Small Business Loans if they want to support a business idea or expand their existing business. For the purpose of business expansion, the majority of financial institutions typically give business loans up to Rs. 75 lakhs with payback terms of up to 60 months.
Types of small business loans in India
There are many types of small businesses present in the market to support and help small-scale industries achieve their goals in day-to-day life. Some of the types of Small Business Loans are as mentioned below:
- Government: The government of the country has offered many schemes and funding to boost the small-scale industries of the nation. The government schemes of funding are mainly for minorities, and elder people, to meet their business expenses on a daily basis.
- Micro Loans: Micro Loans are the type that is provided to the business which does not have a robust requirement of funding and the tenure of the funding is also six years at maximum.
- Business organizations: In this type of Small Business Loan, a large number of businesses collectively provide loans to small businesses that have the potential to grow in the market and will be capable enough to repay the loan amount. Examples of this loan type are the franchise loan and export loans.
- Professional Loans: These loans are basically provided to self-employed people such as Chattered Accountants, doctors, and so on in order to fulfill the employment needs of the profession. The loan is an unsecured loan that can be offered ranging from Rs. 25,000 to Rs. 25 Lakhs depending on the requirement, repayment capability, and status of the applicant.
- Project funding: The project funding of the loan type is for long-term infrastructure requirements of the business and this project funding has a flexible repayment option depending on the project finance report.
- Equipment loans: The equipment loan or the machinery loan is provided to businesses that are not capable of buying equipment or heavy machinery. With the help of equipment or machinery loans, business owners can buy or lease equipment and contribute to the growth of the business.
- Working Capital Loans: Working capital loans are provided to the businesses which will help them in meeting the financial expenses of day-to-day life and can perform the business operations smoothly.
- Bills Discounting: This loan type ensures the business discounts the bills before the maturity date is attained.
- Lease Rental: These lease rentals are long-term loans that can be used for fulfilling business requirements in cases where buying assets could be a waste of money.
- Trade Loans: Trade loans are offered to traders or business owners who opt to start a new business or expand an existing business. These loans are also collateral where security documents are to be submitted such as insurance policies and so on, the installment option is easy and is to be paid monthly.
Benefits of small business loans
There are many benefits related to small business loans and a few of them are as mentioned below:
- Easily accessible: As many banks and non-banking financing systems (NBFCs) offer small business loans, people can easily access these loans in the market. Many of these financial lending institutes also provide online portals where applicants can apply for Small Business Loans finance without traveling to the banks in an easy way.
- Various repayment options: The repayment option is very flexible depending on the borrower’s affordability and this makes the business manage the cash flow in a better way by paying affordable installments monthly.
- Easy and simple process: Small business loans require minimum documents and thus it makes the application process simple and easy which makes it available for many entrepreneurs. Many banks and financial lending institutes also provide online portals which make the application process easy without hassle.
- Quick funding: When business owners are applying for small business finance in order to expand or grow their business small business funding is the best option which is sanctioned in a short span of time as the application process and approval process is quick and simple.
- Affordable rates of interest: The interest rates of the loan basically depend on the business credentials, financial status, loan tenure, and loan amount. Various schemes under the government offer low-interest small business loans to help business owners in meeting their business expenses.
- No collateral required: In the small business loan scheme there is no collateral or security documents are required at the time of applying. This not only makes businesses feel safe about their assets but also helps many small entrepreneurs who do not possess assets to avail of business loans to make their businesses grow without any difficulty.
- Tax relief: This benefit is considered very important as under the Income Tax Act, of the year 1961, the tax benefit is offered to businesses opting for small business loans. The interest paid for a small business loan is deducted as tax payments.
Eligibility criteria for a small business loan
There are some eligibility factors that play a vital role for the applicants to avail the small business loans. Some of these eligibility criteria are as mentioned below:
- Nationality: The applicant must be a citizen of India.
- Age: The age of the applicant at the time of applying must be a minimum of 21 years and a maximum of 65 years.
- Credit Score: The credit score plays a vital role in eligibility as the high chances of getting the desired loan amount highly depends on the CRS score. A credit score of more than 750 is considered high.
- Business Experience: The business must be registered for at least two to three years before applying for a loan and must be in operation from the same location.
- Applicant occupation: The applicant must be self-employed and should possess a minimum of three years of business experience.
Steps to apply for small business loans
Applicants can opt for offline and online methods of applying for small business loans and both methods can be followed to apply as mentioned below:
- Visit the website of the lenders on its official page and choose Small business loan or business loan under the loans section.
- Download the application form from the same link and fill in the details required.
- After filling in all the details, submit the application form by uploading the required documents.
- The customer service team then checks the submitted details and if everything is correct, the loan is sanctioned within a few days after the approval.
- Visit the branch of the lending institution and take the loan form from the service team.
- Fill in all the details and attach the required documents along with a passport-sized photograph.
- Submit the form at the loan counter, once the eligibility is checked by the bank officials, the loan amount is sanctioned within a few days.
Documents required for availing of small business loans
There are a few documents that are required to be submitted when applying for small business loans. Some of the mandatory documents required are as mentioned below:
- Application: The application form along with passport-sized photographs and correctly filled information.
- Identity Proofs: To check the identity of the customer Passport, Voter ID, or Aadhar card needs to be uploaded.
- Address Proofs: For the address proof any of the documents with the residence address like the driver’s License, PAN card, or Utility bills such as electricity bills can be submitted.
- Income Documents: Documents related to income documents are the 2 years’ ITR with income and also profit and loss related to the business from the last 2 years.
- Financial Documents: Bank statements from the past 3-6 months have to be submitted at the time of applying.
- Business Document: The documents related to the business such as the business registered document with the business address and income tax certificate along with the balance sheet with profit and loss turnover have to be submitted by the applicant.
How can EMIs be paid for small business loans?
EMIs are auto-debited through a net banking account of the borrower.
How to check if the business loan is approved?
Customers can check the loan status by using the application reference ID using a net banking account.
Can customers cancel the loan application?
Yes, customers can cancel loan applications anytime before sanctioning the loan amount
Is the interest rate fixed by the lenders?
No, the interest rate depends on the agreement made by the borrower and lender and the loan amount.
Disclaimer: The information contained in this article is for general information purposes only. The information is provided by StartupYo (SAB Weblabs Pvt. Ltd). While we endeavor to keep the information up to date and truest to the best of our knowledge, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability concerning the website or the information, products, services, or related graphics contained on the website for any purpose. Any reliance you place on such information is therefore strictly at your own risk.