'It is easy to get a loan unless you need it': Everybody who has ever required a loan knows this. Be it starting a business or expanding one, business loans are a lifeline. Money earlier was always short in supply. Thankfully, today there are institutions that are willing to lend you money to improve your business. Even, doctors, architects, CAs or other professionals can get a business loan, a lender invests in the business and is virtually backing the borrower's repayment capacity. Mere confidence in your ability to lead a business is not enough when the stakes are so high. A loan for business can be the game-changer you were long waiting for your enterprise to hit the high-growth path. So, consider the important factors below as you hit the 'business loan apply' button.
There is likely to be some confusion or lack of clarity about business loans when you are looking for them. Hence, it is important to clear the doubts at first.
A business loan is typically an unsecured loan. This is provided to a self-employed individual and entity. It can be availed for any business upgrade or equipment purchase. The loan is repaid in equal installments at fixed intervals like every month. You would have to maintain your business for at least 3 years before applying for a loan.
Different types of entities can be funded under a business loan. The list includes Proprietors, Partnership firms, Private Limited Companies, Closely held Limited Companies, and Individuals. You would have to furnish the specific documents to establish the credentials of the entity going for the business loan application process. There is no requirement of any collateral or security guarantee for an online business loan.
Do remember, based on your kind of business, income and repayment capability, you can get a loan up to Rs 40 lakh. However, this does not mean that higher loan amounts are discouraged. In fact, IDFC FIRST Bank may go beyond Rs 40 lakh limit for some high-profile borrowers. The maximum business loan tenure ranges from 48 months to 60 months.
An online business loan is given after assessing the potential of the business and also the ability to return the debt with applicable interest. To make these decisions, financial institutions like IDFC FIRST Bank require documents that establish the business' credentials. As identity proof, you can submit a copy of Aadhaar card, Passport, Voter's ID card, PAN card and Driving Licence.
Next, documents affirming the address proof are required. These can be in form of Aadhaar card, Passport, Voter's ID card or the Driving Licence.
To understand financial transactions history, the lender will ask for bank statements of the previous 6 months, your latest Income Tax Return (ITR) along with computation of income, Balance Sheet, and Profit & Loss account for the previous 2 years. Do remember that these should be CA certified or audited.
In order to know more about the legitimacy of your business, the lender will also ask for a Proof of continuation like ITR, Trade Licence, Establishment or Sales Tax Certificate.
Other mandatory documents can include Sole Proprietor Declaration, Copy of Partnership Deed, Copy of Memorandum & Articles of Association and Board Resolution if the case may be. It is vital that you get each of these documents ready before you apply for a loan for the business.
Every financial lender will stipulate some important conditions for giving you business loans. These norms will be mentioned in the Transaction Documents including the Loan Agreement.
First and foremost will be the Rate of Interest. This may be in form of a Fixed Rate Term Loan or any other variant. These will be governed by Fees & Interest Charges.
Secondly, many lenders may ask you as a borrower to opt for Insurance of the Loan. This will essentially be an insurance cover against the risk of death, permanent disability or critical illness to the borrowers. The lender will be the sole beneficiary.
Thirdly, there is likely to be specific conditions for loan disbursement irrespective of whether it is an online business loan or offline business loan. These norms will direct you to comply with the lender's rules and accept the terms.
The fourth important condition will be about repayment of the loan for the business. They will reiterate that the business loan including the principal, interest thereon and all charges and taxes would be repayable by the borrower to the lender. The money will be deducted from your designated bank account by way of EMIs. Any prepayment of business loans will be subject to the applicable laws and pre-payment charges if any.
Another important set of conditions will be about the loan recovery procedure in case of overdue. This allows the lender to take any legal action for recovery of its dues, of course, governed by the regulatory guidelines. Points regarding loan closure process, documents, and a grievance redressal process may also be mentioned.