Loans for small businesses are available to proprietors of businesses that need working capital to keep their businesses operational. Most of the time, the interest rates on small business loans are better than those on personal loans. The types of loans available include both secured and unsecured options. Note that your business’s credit history normally determines the approval process.
These loans are an excellent option for newly formed small businesses and startups that require development funding but have less established business credit.
Small businesses loan eligibility
Before applying for an online loan for a small business, you are required to fulfil the following criteria
- The borrower must be an independent professional, manufacturer, retailer, or dealer.
- The applicant must be 21 years old to apply for a business loan.
- The loan maturity age should be 65.
- The borrower’s annual revenue should have been at least Rs. 10,00,000 during the previous year.
- The person should have been operating the business for at least three years and have at least five years of experience in the business.
Documents required for small business
In contrast to banks, which require extensive documentation and strict regulations, Fintech companies rely on minimal documentation due to their liberal usage of technology. Before how to get a small business loan, you’ll need to provide the following documents
- Proof of identity and eligibility for the business, including the proprietor’s and the organisation’s PAN and Aadhaar numbers.
- Registrations and other legal formalities prove business existence.
- A statement from your bank for the last six months.
- Lender-specified documents.
How to apply for a small business loan
- Initiate the application process Just put in your personal, business, and financial information to get a loan offer for your business.
- Upload documents The verification process requires one step uploading digital copies (electronic formats) of your documents.
- Get sanctions The approval of your business loan and its subsequent disbursement will be given to you within three working days.
The advantages of small business loans
Here are the advantages of getting a business loan
1. Processing is faster
Faster processing means better credit for your organisation, exploring new horizons and capitalising on emerging opportunities. Expanding your company’s reach, increasing its efficiency, and ultimately boosting profits are all possible outcomes of a timely business loan.
2. Maintaining your property rights
Because it’s an unsecured loan, you won’t have to lose any of your valuable assets or have to give up any of your valuable company shares as security. You may keep your firm ownership while getting the money you need for advancement through business loans.
3. Facilitates your cash flow
Business loans provide funding and time to manage cash flow and become successful. In addition, these loans help you manage your business and organisation’s capital fund by enabling instalment-repayable investment.
4. Obtain a lower interest rate
Typically, the interest rate will be lower than a personal loan. In contrast to many private investors, banks will grant you a loan without requiring any profit-sharing equity in return for their support. Small business loans are often convenient, readily available, and easy to access.
5. Boosting your credit score
A loan from an NBFC is the most effective strategy to increase your business’s credit score. Companies that have recently seen their credit score drop because of unanticipated market conditions benefit particularly from obtaining a business loan.
Loan options available for small businesses in India
The following list is some of the most popular types of loans offered to small businesses. The processing and approval can take several weeks to a few months.
- Term loans Term loans are the most popular sources of funding for small business owners. An organisation borrows a large sum of money from a lender at once, and the money with interest is repaid to the lender over a certain number of years through several instalments. This type of loan is quite simple.
- Small Business Administration (SBA) loans SBA loans are government-backed bank loans. These loans are well-known for having extremely low interest rates and extended payback terms, which are advantageous for those who run small businesses.
- Commercial mortgages Mortgages on commercial assets provide funding for commercial assets like stores, restaurants, and offices. A commercial mortgage can also remodel or enhance an existing business property.
- Business acquisition loans Individuals looking to buy an established company or franchise can get assistance from business acquisition loans.
- Business lines of credit Entrepreneurs have access to a more flexible form of funding in the form of business lines of credit. You can use it whenever you need to, and you only have to pay interest on the money you spend.
- Equipment financing Small business owners can use equipment financing to buy the tools and equipment they need for their business.
- Startup loans Startup loans are given to new, growing businesses. Companies that are new to the market and trying to grow can get a loan to help them get started. Instead of looking at the organisation’s sustainability, the lender will consider the borrower’s personal credit history when determining the interest rates and terms of the loan.
Considerations for a small business loan application
It’s not easy to get a loan for a small business. The following are some potential obstacles that could keep you from getting the needed funding
- Small businesses may not be able to get loans if they have poor credit or a low cash flow.
- Look at your financial records and know what the lender expects before applying for a business loan.
- A strong business plan increases your chances of obtaining a loan by making your business more appealing to lenders.
- This is the most important factor when determining whether you can pay back a loan.
- Some business owners believe they can cover all bases by simultaneously applying for small business loans. However, opening many loan applications simultaneously can raise red flags with credit bureaus.
- When you ask for a loan for your business, the financial institution will want to see evidence that you have sought advice from experienced advisors.
FAQs on Small Business Loans
What is the best method for paying my small business loan EMIs?
- Schedule for the monthly payments to be made automatically
- Allow the financial institution to deduct the repayment amount directly from the bank accoun
- You can pay EMIs using auto-debit or net banking.
- Provide the financial institution with post-dated cheques to cover the EMIs.
Is your CIBIL score necessary to obtain a business loan?
The business's turnover is important and not credit score.
The business credit score is always considered for loan approval.
How will I get if my application for my small business loan has been successful?
You can check your loan status using your net banking account and the application reference number. In addition, after the loan is accepted, the lender will contact you by SMS or email before the loan amount is disbursed.
Can I cancel my application if the loan has already been approved?
Cancellation of the loan is possible before the loan amount is disbursed. At this stage, any fees will not be charged to you in the case of a cancellation. Most of the time, you have three days to cancel the application and get your money back. Make it clear to the lender why you're cancelling the pending application.
Is the interest rate on small business loans fixed by lenders?
No, the small business loan interest rate varies according to the lender and applicant. It is neither standard nor fixed.
I've got an idea for a business startup. Can I get a loan for my business?
As most banks prefer funding organisations that have existed for at least six months, getting a small business loan for a startup can be extremely challenging. However, there are several non-bank financial companies (NBFCs) that could give you loans based on the business idea you have. Before deciding how to get a business loan from a bank for your company, look into all the available options first. You can always arrange a personal loan and spend it to support your business strategy if you cannot obtain a loan.
What are the several ways that I can pay back the loan for my small business that I obtained?
You have three options for repaying your business loan post-dated cheques (often known as PDCs), direct debit, or electronic clearing services (ECS). The majority of lenders and borrowers favour the last two methods of repayment.
What is the maximum loan amount available for a small business loan?
The maximum amount of a loan that can be obtained as a business loan will vary depending on several factors, including the type of business, the lending institution, the applicant's credit score, etc. Therefore, the maximum amount of the loan could reach up to two crores of rupees depending on the variables.
When I apply for a small business loan, would I require any type of security or collateral?
For small business loans, numerous lenders do not require collateral, but a few do. However, collateral may assist borrowers in obtaining a larger loan amount, as it gives lenders security that they can auction the item and reclaim the loan amount in the event of default.
What is my small business loan's monthly instalment amount (EMI)?
The amount of the monthly instalment payment (EMI) will be determined by the total amount of the loan and the repayment term. The EMI Calculator allows you to determine how much your business loan will pay each month.
Is a small business loan's interest rate fixed or variable?
Most lenders will give a fixed interest rate on small business loans, implying that the interest rate will not fluctuate over the specified repayment period. In addition, a fixed interest rate enables the borrower to estimate future payments.
For what purposes are small business loans available?
Small business loans are used for several purposes, including business growth to another major city, increasing the organisation's profitability, office renovation, buying raw materials, leasing larger office spaces, developing business operations, etc.
Is the government's Mudra loan available to me if I work in the khadi industry?
Yes, Mudra loans are available for khadi activities. Mudra loans can be used for any business that profits through manufacturing, trading, or services.
What is the maximum payback period available for small business loans?
The maximum repayment period for small business loans can vary depending on the lender and the amount borrowed. However, the maximum term available from lenders is sixty months.
Can I be eligible to get a small business loan to start a fashion boutique?
Yes. A fashion boutique qualifies for a small business loan since it will increase profits.