Types of Business Loan

Business Loan

Every single business has a distinct requirement for a loan. The requirement can be- to expand the business, to purchase particular equipment for business, to run any seasonal business or to meet the financial crisis of the business.

So, Business Loan is an ideal option to cater to the needs of the business professional.

Different Types of Business Loan

Following are the different types of Business Loan:-

  • Demand Loan – It is to meet the short-term financial requirement which can be both secured and unsecured loan. When a business person opts for a demand loan he has to repay the loan amount whenever the financial institution recalls it. The maximum tenure for this loan is 1 year.
  • Bank Guarantee – The financing company which can be either a partnership/proprietorship firm or any public/private company can apply for this bank secured loan if it can offer residential or industrial property as collateral. In case of default, the financing company will have to pay the stakeholder of the guaranteed business.
  • Overdraft – With the use of this loan is taken and the loan amount exceeds the amount in the account for the business need. Based on the mutual agreement between the business person and the financial institution, the maximum loan amount is decided.
  • Cash Credit Facility – With this facility, a business professional can avail loan against inventory, receivables etc as collateral. Depending on the stock margin fixed by the bank, the maximum loan amount is decided. The loan tenure can be renewed after every 12 months.
  • Loan against Securities – To meet the financial need of the business, a business person can opt for this loan against financial securities like insurance policies, bonds, mutual funds etc.
  • Invoice or bill discounting – Businesses can avail this bill discounting facility and can get instant cash against the invoices of its credit sales as collateral.
  • Term Loan – Term Loan can be both secured and unsecured loan depending on the need of the business. 3 types of business loan are there- Long-term loan, Short-term loan, Intermediate Loan.
  • Business Loan Women Entrepreneur – This loan is basically to encourage potential women entrepreneurs and provide them with benefits like interest rate, security etc. But this loan is valid only for women holding more than 50% shares of the company.

Eligibility Criteria

Self-Employed Non-Professionals
  1. Age limit- Minimum age limit for the business person will be 21 years and Maximum age limit is 65 years.
  2. Applicant should have minimum 5 years of experience in the business.
  3. Applicant must have minimum 3 years of experience in the current business.
  4. Business turnover should be a minimum of Rs. 40 lakhs.
  5. The ITR report should be of a minimum of Rs. 1.5 lakhs per annum.
  6. Last 2 year must experience profit to the business.
  7. Following entities will be eligible for a business loan- Private Limited Companies,  Partnerships, Limited liability partnerships, Closely held Limited Companies.
Self-Employed Professionals

The applicants are practicing professionals with proper qualification proof and under the categorization of CA, architect etc.

Compulsory Testimonials for Business Loans

  1. ID proof of the applicant- AADHAR card, PAN card, Voter ID card.
  2. Residence proof- Utility Bills like Electricity bill, Gas bill.
  3. PAN card of the company.
  4. Bank Statement for the last 6 months.
  5. An approved copy of Partnership Deed.
  6. Verified copy of Memorandum and Articles of Association.
  7. Business continuation proof- Sales Tax Certificate, Trade License.
  8. Copy of ITR file for last 2 years.
  9. Balance Sheet, Computation of Income, Profit and Loss statement for the last 2 financial years.

Interest Rates of Top Banks/NBFCs

Bank/NBFCRate of InterestMaximum Loan amountTenureProcessing Fee
ICICI Bank12.9%-16.65%Rs. 1 crore1-5 yearsUp to 2%
HDFC Bank15.50%-18.30%Rs. 50 lakhs1-5 yearsUp to 2.5%
Bajaj Finserv16%-21%Rs. 30 lakhs1-4 yearsUp to 2%
Capital First13%-20%Rs. 75 lakhs6 months-3 yearsUp to 2%
Standard Chartered Bank 13.5%-20%Rs. 75 lakhs1-5 yearsUp to 2%
Kotak Mahindra Bank16.00%-19.99%Rs. 7.5 lakhs1-3 yearsUp to 2%

Benefits of Business Loan

Following are the benefits of taking a business loan:-

  • Flexibility – Banks are a convenient and flexible option to opt for applying business loan which provides easy banking facilities and also doorstep service.
  • Tax benefits – There is some amount of relief from tax payment if a small business takes a loan from the bank.
  • Variety of loan options – Banks provide different types of business loan which will cater to the various needs of business professionals.

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