Top-9 Questions & Answers on How to Get a Business Loan

Irrespective of your business's nature and segment, positive cash flow will always be an imperative element. Every small business person that thinks of scaling up or extending their services needs external financial support. Getting help for your business is no more a difficult task. People can approach investors, bigger brands, or financial institutes for help. One of the easiest and preferable assistance that your business can get is through business loans.

If you are running a small business and are planning to expand your services, here is a complete guide that can easily help you get a business loan.

1. What are the business loan types in India?

There are several types of business loans that are offered in India. Some of the common ones are listed below.

(a) Line of credit

Understanding the "line of credit" loan type is easy. It works similar to a credit card for any small scale business. If you avail of this loan, the financier issues a pool of funds that can be used for your business. The funds can be withdrawn whenever you want. The interest will be levied on the money that's withdrawn by the person and not on the entire loan amount. Once you repay the amount with interest, you again become entitled to use the funds. Thus, "line of credit" is one of the best loans for small business owners due to its viable choices.

(b) Merchant cash advance

If your business includes debit and credit card transactions, then availing of the "merchant cash advance" is the best option for you. Based on the monthly transactions, the moneylender buys or acquires a part of your card sales. When you avail of this business loan, the repayment is made by extracting the amount from the revenue generated by your card transactions. If you plan on availing of this option, you can make the repayment daily rather than paying hefty monthly EMIs.

(c) Term loan

A term loan is one of the most common loans that are available for small businesses. There are two term loans i.e. secured and unsecured. The loan amount and tenure depend on the loan’s nature. Where the unsecured tenure is between 1 to 5 years, the tenure for a secured type loan can be anywhere between 15-20 years.

(d) Start-up loan

As the name is self-explanatory, the start-up loan is for new ventures. The person who owns the business can directly apply for this loan, and it gets approved without much documentation. During the loan procedure, the personal credit profile of the person is checked. Based on the credit profile, loan amount, interest rate, and tenure are decided.

2. What are the things that you need to consider before applying for a business loan?

(a) Credit score

To apply and get a business loan, you must have a good personal and business credit score. However, having a bad credit score does not mean that you won’t get a loan but there are high chances that the terms might be tweaked for you. With the terms and conditions, it might also affect the levied interest rates. Therefore, having a good credit score means getting loans easily without any hiccups.

(b) Business tenure

Business Tenure is one of the most important factors that highly impact your loan amount and the hassles related to it. For people having a longer and stronger business tenure, it gets easier to avail the funds. So, the longer your track record the better and easier it becomes to avail the loan.

(c) Business plan

To get any business loan, it becomes important for the business owner to have a strong business plan. Also, you need to convey the message and your plan to the moneylender. To secure funds, you need to present your business in the best way possible, and it must present a clear picture of your business plan.

3. What are the documents required for a business loan?

Just like any other loan, a business loan will also require a big fat file to be created. If you wish to apply for any kind of business loan you need to present a few documents to the lenders. These documents include the following:

Identity proof
Residential address proof
Your business’ PAN card
Partnership deed and certificate of incorporation
Last 6 months’ bank statements (self and business)
Audited balance sheet
Last 3 year’s financial statements
Documents presenting profit & loss accounts
Business and personal tax returns for the last 3 years.

4. How can you apply for a business loan?

The application for a business loan is quite simple and straightforward. The above-listed documents are a must for verification. Primarily, you need to be an Indian citizen, and you should have a legitimate business. The minimum duration or working period of your business should be 6 months. Now, here are the steps that you need to take to apply for a business loan.

You need to fill an online application, which is also your first step.

While filling the form, you will be asked to upload several scanned copies of your documents.

Once your form is completed, you will get a lending decision within 48 hours.

If all your documents are updated, they match the requirements, and have no discrepancy, then your funds would be credited directly to your nominated bank account.

5. What exactly is a business loan?

A business loan is a 1-3 years unsecured loan offered to a small business owner by the banks, NBFCs, P2P lenders based on your business profile, cash flow, and a few more aspects. Generally, in a business loan, the lenders do not ask for any collateral, guarantor, and asset. All you need to do is present a few documents and get the loan.

6. How is the loan eligibility calculated?

There are a few factors on which your eligibility for getting a loan and the loan amount depends. Some of them are as follows:

You CIBIL score
The nature of your business
The finances of your business
Cash flow

7. What’s the difference between part payment and pre-closure?

Both these financial terms are self-explanatory. Pre-closure is a scenario in which the business owner settles the principal amount with interest in a single go. It is one of the best ways to increase your CIBIL score and make getting loans in the future easier.

On the flip side, part-payment is when the business owner repays the principal amount and the interest in parts.

8. Is it possible for pre-closure in business loans?

Pre-closures are possible in business loans, but several banks have a minimum lock-in period of 6 months to a year, whereas other money lenders settle for pre-closures after the 1st loan payment is debited from the person's account.

9. How long will it take to disburse the loan amount?

Firstly, it depends on the lender you choose for your loan. Secondly, it is the amount that you ask for. Thirdly, you need to complete the documentation. Once this is done and there is no discrepancy in your documents, the amount will be credited to your bank within 48 hours. However, there are many terms and conditions that would have to be met by the small business owner.

The bottom line

The takeaways of this article are that you have an ample number of options for applying for a business loan. It all comes down to the business line, strength, and the other listed aspects that would determine the loan amount as well as the obstacle in your path. Hope this guide helps you understand all the business loans and guide you in availing of the best one for your business.

Also read:

1) How To Get Small Business Loan From Government?
2) What is a business loan? How to apply for a business loan?
3) 7 Different Types of Loans for Your Small Business
4) Are small business loans secured or unsecured?