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What is Business Loan & Benefits of Business Loan

Business Loan

You have finally decided to take a plunge and start your own business. But before you can get going, you need to sort out the finances to support your business. This is where a bank loan for business can come to your rescue. Let us take a look at how to get a business loan to help your dream take off.

What is a business loan?

Business loans are unsecured financial assistance provided by banks and NBFCs in India. The primary aim of these is to support the urgent needs of your growing business. Most financial institutions offer term loans and flexi loans to cater to the business needs of a company. Business loans are also called commercial loans. All types of businesses such as a sole proprietorship, privately held company, partnership firms, self-employed individuals and retailers can avail these loans.

Why are business loans attractive for start ups?

Start up business loans can go a long way in meeting essential requirements such as business expansions, dealer and vendor financing etc. Given that these are provided without any collateral or security, it makes it very easy to apply for a bank loan for business. Another attractive feature of business loan obtained by a company is that in the event of a loan default, the company can be liquidated to pay off the dues.

For a start up, approaching a bank or NBFC for a business loan is a better proposition compared to seeking investment from venture capitalists. Unlike VCs, banks do not ask for any equity dilution. Moreover, banks also structure loans depending on their unique requirements.

What are the interesting features of a business loan?

Foremost, a business loan interest rate remains fixed throughout the tenure. However, depending on the profile of the borrower, a lender may also offer a floating rate of interest, in which case the interest rate will vary through the tenure of the loan. Typically, rates vary between 11%- 19% (subject to change).

A bank loan for business is offered up to Rs. 50 lakh. Be mindful that the quantum of the loan depends on the profile of the borrower. However, credit history is also crucial while the loan application is processed. If you have a decent credit score, it will be easier to get a higher amount at an attractive rate of interest.

It is also possible to avail business loans even if you have a bad credit rating. A borrower can leverage the application through the status of the revenues, type of business and the assets of the company. In case the assets of the company are more valuable than the loan, banks will not shy away from sanctioning it.
The repayment tenure of the loan is between 1 to 5 years and depends on the ability to repay.

Availing start up business loans is also preferred because there’s minimal paperwork. Most financial institutions only require KYC documents to process the loan application. This makes the process hassle-free.

Loans for a female business owner

If you are a female entrepreneur, you can also explore business loans for women. A lot of public sector banks have special schemes for women who have their own business. There are also special schemes from the union and state governments to provide finance to women to support their business initiatives. Some of the popular loan schemes for women include the Annapurna scheme, Stree Shakthi Scheme, Dena Shakti Scheme, Udyogini Scheme, Cent Kalyani Scheme and Mahila Udyam Nidhi Scheme, etc. Some of the features could include attractive business loan interest rate or flexible repayment options.