The good news is that banks have now increased their credit options especially to SMEs, which include some innovative product and service offerings.So, if you are starting a new venture or are keen on expanding your business by purchasing new units or machinery or require additional working capital then you can apply for a business loan.
Bank loans have various categories, which include:
Term Loans :
Terms are loans are largely categorised into – short term, long term and intermediate loans. These loans can be applied at various stages of a business. Here, the maximum tenure on a short-term is 3 years, and 10 to 15 years onlong-term loan.The tenure may vary slightly from one bank to the other.
Further, term loans are divided into: secured and unsecured loans. So, as the name suggests, secured loans are given against collateralslike property, business premise or any other asset. These loans have lower interest rates in comparison to unsecured loans, which are offered with minimum documentation.
Letter of Credit :
Here, the transaction is facilitated against the bank’s creditworthiness. This is usually issued in case of international trade.
Overdrafts :
In case of an overdraft, the account owner can withdraw more money than what’s deposited. Usually, banks allow owners to overdraw within a pre-agreed amount. Alternatively higher interest rate is applicable if it exceeds the pre-decided limit.
Bill Discounting :
Here, a business owner is given immediate cash for large purchases or offered credit sale made by discounting the amount against the bill or invoice.
How To Apply For A Loan :
The process works like any other loan, where a bank looks into the credit score of the borrower. The other key thing that a bank usually checks in case of loans is the financial statements and records of the business.
However, if you are first-time business owner, then a bank will look into your background, credit history, assets and liabilities, education, experience, business plan and its feasibility.
The good news is that in most cases the documents required for a business loan are simple.Here is a quick checklist of the basic documentation required for getting a business Loan:
1. A copy of the PAN card of the person, in case if it’s a proprietor firm otherwise, banks will need the PAN card that of thecompany
1. An identity proof such as Aadhar Card, Passport, Voter ID, PAN Card or Driving License
2. An Address Proof, which could be Aadhar Card, Passport, Voter ID or Driving License
3. Bank statements from the last 6 months
4. ITR statement from the last year
5. Audited balance sheet and P&L statement for the past 2 years – this is for established business
6. Cash Flow statements of established businesses
7. Debt Obligations, if any
8. Other documents as required by the bank or NBFC may include, declaration of ownership, MoA, Resolutions and Power of Attorney.
So, go on collect all your basics and create the business you desire. If you wish to know more or apply for a business loan, please fill your details below.
