What is a Business Loan?

• A business loan is a loan that can be used by those who aim to establish or expand their firm. Whether it be for working capital needs, buying new equipment or machinery, investing in marketing efforts for the business, or for payroll expenses, a business loan is a good idea. They can be either unsecured or secured. Apply for a business loan on GrowScore. Compare between 26 plus lenders and choose the most suitable one for you.

Features and Benefits of A Business Loan

• High Loan Amounts: Business loan amounts can go up to a maximum of Rs.5 crores or more depending on the needs and requirements of the customer. The loan amount is typically given based on the size of the business and the amount needed for operations such as expansion, inventory, working capital and more.
• Flexible tenures: Business loans have tenures that can extend up to 10 years based on the customer’s requirements
• Minimal documentation: Most business loans have a very simple loan process that needs minimal documentation from the customer. Some lenders offer doorstep services to collect the few documents that are required to make the process more convenient for the customer.
• Speedy disbursal: Most lenders who give business loans ensure that the loan amount is disbursed to your bank account in 3 working days or sooner. In some situations, it can take longer due to document verification and other formalities that are followed.
• No collateral required: Many banks and financial lending institutions give business loans to individuals without asking for collateral. This implies that businesses don’t run the risk of losing assets in case they default on their loan. This means that the business is evaluated based on its expected receivables and cash flow.
• Helps in building your credit score: When you pay your business loan EMIs on time, it helps in enhancing your business credit score and personal credit score (in case of sole proprietorship). This will increase your opportunities to obtain credit in the future.
• Easily accessible: Many banks and NBFCs provide business loans online. You can thus apply for a business loan from the comfort of your home or anywhere, anytime. Also, websites now provide facilities for tracking details about the loan even after disbursal, such as interest certificate, payment schedule, repayment history, etc.
• Easy Repayment Options: They can be repaid in easy EMIs and come with flexible repayment options.
• Multipurpose Loans: They can be availed for a variety of reasons like business expansion, working capital needs, marketing efforts, etc.
• Business loans come with additional benefits such as Web Chat, SMS, Phone banking, etc. Some banks even give exclusive higher loan amounts to their self-employed customer base.
• Doorstep Service: Many lenders provide their customers with the benefit of doorstep service.

Documents Required For Business Loans

• PAN card for company, firm, or individual
• ID Proof: Passport copy voter’s ID copy, driving license, and Aadhaar card copy
• Bank Statement for the last 6 months
• Proof of business continuation: ITR/Establishment/Trade License/Sales Tax Certificate
• Certified copy of partnership deed or sole proprietorship declaration
• Certified true copy of Memorandum and Articles of Association.

How To Apply For A Business Loan?

On GrowScore

• Step 1: Click on ‘Check Eligibility’. If you want to read more about the loan, click on ‘Know More’.
• Step 2: Post clicking ‘Check Eligibility’, you will be redirected to another webpage. Enter the basic details on this webpage, like name, mobile number, email id, business type, industry of the business, etc. Click on ‘Next’
• Step 3: Proceed with the rest of the steps to complete the application.
• On The Lender's Website
• Step 1: Go to the lender’s website, click on the loan product that you wish to apply for, and click on ‘Apply Now’.
• Step 2: Post this, you will be redirected to another webpage. Here, you will be required to enter certain basic details into an online application form. You will be asked to enter your name, contact number, age, city of residence, details about your business, etc.
• Step 3: Once you enter the necessary details, click on ‘Submit’. Post submission, a representative from the bank or financial institution will call you to take the loan application process forward.
• Offline :
• You can also walk into the nearest branch of a bank or the financial institution directly and apply for the business loan. You will have to submit the loan application form along with the required documents at the branch.

Factors That Affect Interest Rates For A Business Loan in India

• Nature of Business: The most important factor affecting your business loan is the nature of your business. Your business should be positive and the place of doing the business should not be blacklisted. Lenders examine the previous nature of your business to see whether it is profit-making or is incurring losses before deciding the interest rates.
• Credit score: A credit score is a three-digit number that is in the range of 300 to 900. It shows your creditworthiness to your lender. Lenders use your credit score to evaluate your reliability. If you have a good credit score, then the interest rates for your business loan will be much lesser. A credit score of 750 and above is considered a good score by most lenders. If you have a low credit score, then your lender will consider you to be a risky borrower and will increase the interest rate for the loan or reject your loan application. Always check your credit score before applying for a business loan.
• Business Vintage: Your business experience or age is important. If you have a long and established business, then lenders may charge a lower interest rate for business expansion. Lenders may charge higher interest rates for startup loans due to defaults and non-payments. Individuals who have been doing business for a long time have many business loan products to choose from.
• Annual Turnover: The lender sets the business loan interest rate according to the annual turnover. If the annual turnover of the business is high, the rate of interest and the EMI will be lower. If your turnover is low or does not satisfy the lender, then a higher interest rate will be charged. This will lead to a higher EMI amount
• Revenue and Profit: The lender always checks the monthly, quarterly, and annual revenue of your business before deciding the interest rate. If your revenue is not good, then the lender may approve your application. But, they will levy higher interest rates.
• Credit history: If you have a long credit history marked by timely repayments of loans and credit card bills, then the interest rates that you will receive from your lender for your business loan will be low. If your credit history is bad, the interest rates will be higher as you will be seen as a risky customer.
• Relationship with the lender: If you have a good and healthy relationship with the lender you are borrowing from and are an existing customer with them, then the interest rates can be negotiated for and one can get a lower interest rate.
• Additional Read: For more on factors influencing business loan interest rates,

What Are The Reasons For Taking Business Loans?

The following are the circumstances to apply for business loans

• For starting out on a business: If you have a great idea for a startup that you want to turn into an endeavor for potential income, a business loan can be taken for the same purpose. You should make sure that your idea is good enough to generate enough profits and the overhead cost of the business is not so high.
• While Expanding Your Business: The chances of getting a business loan approval are high when you take a business loan for expansion. This is because it will already have a proven track record. Business expansion can include the launch of a new product, starting a new department, upgrading an operation or a product, and exploring a new area or market, etc.
• To Purchase Machinery and Equipment: it is essential for a business to maintain a regular supply to the market for a product that is high in demand. For this, the company has to invest in equipment and machinery with the latest technology. Furthermore, a company may also need to buy equipment during an expansion. Business loans are a great way to fund the purchase of machinery and equipment.
• To Convert Business Losses Into Profits: A business loan can also be availed to convert a business that has been incurring losses into a profitable one. Lenders may hesitate to fund a business that has been running with losses. But, if you have a proper plan as to how you are going to improve the profits, you will succeed in finding a business loan.
• To Settle Previous Debts: You can get a business loan to repay previous debts.
• For Running A Seasonal Business: If you are operating a seasonal business, then orders may start rushing in that season. Then, it may be difficult for you to manage the expenses due to the high demand. In that case, you can secure a short-term business loan to offer continuous service to your customers. Then, you can repay the loan using the profits made after the season is over.
• Working Capital For Business: When the cash flow within the organization is less due to a boom in the market or the increase in the operating cycles, It is tough to manage regular expenses such as supplies, raw materials, and salaries. In order to keep the business operational and recover from the financial crisis, an entrepreneur can take a business loan.

What Are The Reasons For Taking Business Loans?

The following are the circumstances to apply for business loans

• For starting out on a business: If you have a great idea for a startup that you want to turn into an endeavor for potential income, a business loan can be taken for the same purpose. You should make sure that your idea is good enough to generate enough profits and the overhead cost of the business is not so high.
• While Expanding Your Business: The chances of getting a business loan approval are high when you take a business loan for expansion. This is because it will already have a proven track record. Business expansion can include the launch of a new product, starting a new department, upgrading an operation or a product, and exploring a new area or market, etc.
• To Purchase Machinery and Equipment: it is essential for a business to maintain a regular supply to the market for a product that is high in demand. For this, the company has to invest in equipment and machinery with the latest technology. Furthermore, a company may also need to buy equipment during an expansion. Business loans are a great way to fund the purchase of machinery and equipment.
• To Convert Business Losses Into Profits: A business loan can also be availed to convert a business that has been incurring losses into a profitable one. Lenders may hesitate to fund a business that has been running with losses. But, if you have a proper plan as to how you are going to improve the profits, you will succeed in finding a business loan.
• To Settle Previous Debts: You can get a business loan to repay previous debts.
• For Running A Seasonal Business: If you are operating a seasonal business, then orders may start rushing in that season. Then, it may be difficult for you to manage the expenses due to the high demand. In that case, you can secure a short-term business loan to offer continuous service to your customers. Then, you can repay the loan using the profits made after the season is over.
• Working Capital For Business: When the cash flow within the organization is less due to a boom in the market or the increase in the operating cycles, It is tough to manage regular expenses such as supplies, raw materials, and salaries. In order to keep the business operational and recover from the financial crisis, an entrepreneur can take a business loan.

Dos and Don'ts Of Business Loans

• Dos
• While Expanding Your Business: The chances of getting a business loan approval are high when you take a business loan for expansion. This is because it will already have a proven track record. Business expansion can include the launch of a new product, starting a new department, upgrading an operation or a product, and exploring a new area or market, etc.
• To Purchase Machinery and Equipment: it is essential for a business to maintain a regular supply to the market for a product that is high in demand. For this, the company has to invest in equipment and machinery with the latest technology. Furthermore, a company may also need to buy equipment during an expansion. Business loans are a great way to fund the purchase of machinery and equipment.
• To Convert Business Losses Into Profits: A business loan can also be availed to convert a business that has been incurring losses into a profitable one. Lenders may hesitate to fund a business that has been running with losses. But, if you have a proper plan as to how you are going to improve the profits, you will succeed in finding a business loan.
• To Settle Previous Debts: You can get a business loan to repay previous debts.
• For Running A Seasonal Business: If you are operating a seasonal business, then orders may start rushing in that season. Then, it may be difficult for you to manage the expenses due to the high demand. In that case, you can secure a short-term business loan to offer continuous service to your customers. Then, you can repay the loan using the profits made after the season is over.
• Working Capital For Business: When the cash flow within the organization is less due to a boom in the market or the increase in the operating cycles, It is tough to manage regular expenses such as supplies, raw materials, and salaries. In order to keep the business operational and recover from the financial crisis, an entrepreneur can take a business loan.