Business loan is a funding support offered by Banks and NBFCs to meet the financial requirements of self-employed customers. It can be availed by individuals, MSMEs, business owners, entrepreneurs, and several other entities.
Business loans are mainly classified into two types, such as secured loans and unsecured loans. Secured loans are types of loans that require collateral/security that a borrower needs to deposit with the lender to avail a loan. However, in the case of unsecured loans, there is no need to submit any collateral/security with the bank, NBFC or any other lender.
Most of the financial institutions offer unsecured business loans, including Term Loans, Working Capital Loans, Loans under Govt. schemes, Overdrafts, etc. Leading banks offer secured loans in the form of Letter of Credit, Bill/Invoice Discounting, Equipment Finance, Machinery Loans, POS loans, etc.
The minimum loan amount offered starts from Rs. 30,000 that can be availed from Small Finance Banks (SFBs), Regional Rural Banks (RRBs) or Micro Finance Institutions (MFIs). Borrowers can avail collateral-free business loans for up to Rs. 1 crore from leading banks and NBFCs. Small business loans are also available for MSMEs and Startups at affordable interest rates from top banks.
Interest Rate (p.a.)
|Kotak Mahindra Bank||14% onwards|
|HDFC Bank||16% onwards|
|Axis Bank||17% onwards|
|Fullerton Finance||17% onwards|
|Bajaj Finserv||17% onwards|
|Yes Bank||17% onwards|
|Tata Capital Finance||17% onwards|
|ICICI Bank||18% onwards|
|Lendingkart Finance||18% onwards|
|Hero FinCorp||18% onwards|
|IIFL Finance||18% onwards|
|Indifi Finance||18% onwards|
|NeoGrowth Finance||18% onwards|
|RBL Bank||19% onwards|
|U GRO Capital||19% onwards|
|IDFC First Bank||20% onwards|
|HDB Financial Services Ltd.||22% onwards|
Note: The mentioned interest rates are subject to change and depend on the sole discretion of the bank, NBFC, SFB, MFI and RBI. Interest Rates are updated as on Oct 2021.
Credit score plays a significant role in the loan approval process. It represents your credit history along with the repayment timeline of availed funding products. Generally, any credit score of 750 or more is considered good by the financial institutions. However, if your credit score is bit low of 650 or above, there are still chances of loan approval from some NBFCs, Small Finance Banks and Micro Finance Institutions.
The credit score eligibility defined by financial institutions are different for individuals, self-employed professionals, MSMEs, retailers or manufacturers and other business entities.
Different ranges of credit score is required by banks/NBFCs, from borrowers who require various types of business loans, such as term loan, working capital loan, letter of credit, overdraft, POS loans, etc. The credit score range defined by the lender for a specific loan product shall vary from applicant to applicant and loan types.
People with New-to-Credit should also start to build a credit score for loan approvals, as applicants with low credit scores are always at higher risk of loan rejections. Startups require even higher credit scores to avail business loans and they are new to the lending market and are about to set up a new business. Therefore, build and maintain a good credit score to enhance the chance of loan approval.
Check the credit score for free and apply for loan online, as per your business requirements.
When applying for a business loan, you will need to submit the following documents:
The fees and charges of business loan vary from lender to lender and case to case. The fees and charges depends on the loan amount, interest rate and repayment tenure.
Apply for Business loan by following below mentioned 4 simple steps:
Step 1: Fill in the required fields as mentioned in the form and Check the box to agree on terms and further Click to ”Unlock Best Offers”.
Step 2: Further you will be required to mention your company details, basic personal information, along with registered mobile number and email address.
Step 3: After submitting all the details, the bank’s representative will contact you to proceed with loan formalities.
Step 4: Once your loan application and documents are verified and approved by the bank, within defined working days the loan amount shall get disbursed in your mentioned bank account.
To promote entrepreneurship among women, lenders have started offering attractive loan schemes to women entrepreneurs. These business financing schemes are exclusively for women and it provides them relief in terms of interest rates and collateral. Some of the banks also have special departments for women entrepreneurs where they provide business consulting, training and counselling along with avenues for marketing and showcasing of their products.
Women entrepreneurs whose ownership is less than 50% in the company are not eligible to avail the benefits of the women’s special schemes.
Some of the popular loan schemes for women entrepreneurs are as follows:
1. Term Loan
Term loan is offered under various types, such as short-term loan, long-term loan and other small business loans. The loan amount offered under term loan depends on the applicant’s profile and business requirements that can be repaid in 12 months to 5 years, in the form of EMIs. Term loans are divided into two parts, unsecured business loans, and secured business loans. Secured loans require collateral to be submitted with the lender, which is not the case with unsecured business loans.
2. Working Capital Loan
Working capital loans are availed to meet the day-to-day business requirements or to manage business cash flow. The working capital loan can be availed for various other purposes, such as business expansion, buying equipment or machinery, purchasing raw material or goods, paying off salaries or rent, enhancing inventory, and much more.
3. Bill (Invoice) Discounting
Invoice discounting is a financial instrument offered by banks and NBFCs. Bill discounting is a source of working capital finance for the seller of goods on credit. It is a discount which a financial institution takes from a seller’s customer. Through the payment being made by letter of credit, the buyer has the option of buying goods from the seller. Bills that come under bill discounting are termed as ‘bills of exchange’.
4. Letter of Credit
Letter of credit is a payment instrument used mainly in international trade in which the bank provides a monetary guarantee to enterprises that deal in the import and export of goods. Enterprises doing businesses overseas have to deal with unknown suppliers and they require assurance of payment before performing any transaction. Therefore, a letter of credit is important to provide payment assurance to the suppliers or exporters.
5. Point of Sale (POS) Loan
Point of Sale Loan is a type of funding wherein merchants offer their customers some financial assistance at the point of their purchase. Business owners, enterprises, MSMEs, entrepreneurs, and retailers can avail Loans against POS machines to start a new business or to manage their existing businesses. POS Loan is also termed as Merchant Cash Advance in which the loan amount depends on the business volume generated via POS terminals.
6. Overdraft Loan
An overdraft means overdrawing money from ones’ current/savings account even if the account balance is zero. An agreed rate of interest will be charged if the overdrawn amount is within the limits of a preceding agreement. The interest rate is charged only on the utilized amount of the total withdrawal limit.
Ques. What is a good credit score to get instant business loans?
Ans. Any credit score that 750 or above is considered good by financial institutions. The maximum credit score is 900 and any score close to it shall be preferred first by lenders.
Ques. How to choose the ideal repayment tenor for business loans?
Ans. Ideally, if you avail short-term loan then the repayment tenure should not exceed 12 months. However, it may increase as per the desired loan amount. The maximum repayment period can be chosen up to 5 years depending upon the loan amount.
Ques. What is the impact of GST on business loans for new businesses?
Ans. GST plays an important role in getting business loans, as the more the GST is paid, the larger shall be the business volume. Therefore, it becomes easy for banks to rely on such applicants or borrowers that pay their GST.
Ques. What is the minimum turnover requirement for a loan to start a business?
Ans. The minimum annual turnover criteria is defined by the lender and vary from bank to bank. However, applicants shall apply online with a minimum annual turnover of Rs. 12 lakh or above for existing enterprises or businesses.
Ques. Do I need to submit any collateral to the bank before applying for a business loan?
Ans. No, you are not required to submit any collateral to the bank or NBFC, only for few specific secured business loans, collateral is required.
Ques. What are the pre-closure and part-prepayment charges in business loans?
Ans. The pre-closure and part-payment charges vary from lender to lender. It may be Nil from some banks and may exceed up to 4%-5% of the loan amount from others. Ensure to check the same with your lender.
Ques. What are the loan schemes initiated by the Government of India?
Ans. Some of the popular schemes include MUDRA Yojana under PMMY, SIDBI loan, CGTMSE, PMEGP, Standup India, Startup India, psbloansin59minutes.com, NSIC, NABARD, etc.
1st Sept 2021: Finance Minister Nirmala Sitharaman announced Govt. Guaranteed – Loan Scheme for Covid Affected Sectors (LGSCAS) of Rs. 50,000 crore exclusively for the healthcare industry. Under this scheme, banks can offer loans to the medical sector and for building healthcare infrastructure in smaller towns and non-metropolitan cities. The maximum interest rate offered under this scheme is 7.95%. This loan scheme came into effect from May 7, 2021 and is valid up to March 2022. LGSCAS offers funding coverage for brownfield expansion and greenfield projects related to the healthcare and medical infrastructure.
26th July 2021: Under this co-lending program, Micro Small and Medium Enterprises (MSMEs) can now avail business loans worth Rs. 1000 crore that shall be disbursed by Bank of Baroda in partnership with U GRO Capital. As per RBI’s revised co-lending regulation, 80% of the loan amount shall be disbursed by BOB and the rest by the NBFC partner. The loan can be availed by MSMEs operating at U GRO’s over 200 channels around 9 locations in cities that include Delhi, Mumbai, Kolkata, Chennai, Hyderabad, Jaipur, Ahmedabad, Pune, and Bengaluru. Below are the loan details offered for MSMEs:
Features of MSME Loan under the co-lending program
8%-10% per annum
Up to Rs. 50 lakh
Up to 120 months
28 June 2021: Finance Minister Nirmala Sitharaman announces additional Rs 1.5 lakh crore funding under the Emergency Credit Line Guarantee Scheme (ECLGS) for Covid affected sectors. The sector-wise details shall be decided as per the requirements or sector needs. Now the ECLGS scheme is expanded up to Rs. 4.5 lakh crore. Approximately, 25 lakh people can avail the loan via Micro Finance Institutions (MFIs). This fiscal stimulus is launched as a part of the Atma Nirbhar Bharat Package in May 2020.
SBI Launches New Business Loan Scheme to support Healthcare Sector
June 25, 2021: SBI introduces the Aarogyam Healthcare Business Loan scheme to offer financial support to the healthcare sector to fight Covid-19. Under this special loan category, healthcare entities can avail loans up to Rs. 100 crore, as per their geographical location. The repayment tenure of the loan is up to 10 years. Collateral-free loans up to Rs. 2 crores, as covered under the guarantee of Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). The nature of the loan is both a Term Loan for expansion purposes, as well as a Working Capital Loan in form of a letter of credit and cash credit. For Tier, I & Urban centres maximum loan amount offered is up to Rs 20 crore and Rs. 10 crores for Tier II to Tier VI centres.
Loans offered under Mudra Scheme exceeds Rs. 9 lakh crore
June 24, 2021: At G20 Labour and Employment Ministers’ Meeting, Labour Minister Santosh Kumar Gangwar announced that more than Rs 9 lakh crore has already been disbursed, as collateral-free loans under the Mudra scheme. As per the labor minister, approximately 70% of the account holders are women under Pradhan Mantri Mudra Yojana (PMMY). Mudra Yojana was primarily introduced to offer financial support to budding entrepreneurs across the nation.
SME Loan Relief Measures during COVID-19
30th May 2021, SBI and IBA announce SME loan relief measures for individuals and MSMEs to lower the COVID impact. The Government of India declares an extension of its Rs. 3 lakh crore ECLGS – Emergency Credit Line Guarantee Scheme.
RBI announces Rs. 50,000 crore funding support to fight COVID
5 May 2021: RBI Governor, Shaktikanta Das introduced new measures to tackle the second wave of COVID-19 in India. The Governor announced on-tap liquidity funding of Rs 50,000 crore, as a credit facility to be offered to banks, NBFCs, and other lending institutions. This funding support is in the form of incentivized loan schemes that shall be offered to the enterprises engaged in the healthcare, manufacturing, and logistics sectors. Vaccine manufacturers, hospitals, medical equipment makers, as well as patients shall be offered loan schemes by the private and public sector banks, NBFCs, Micro Finance Institutions (MFIs), and Small Finance Banks (SFBs).
Government launches Atmanirbhar Bharat Abhiyan 2020
12 May 2020: Government launches Atmanirbhar Bharat Abhiyan 2020
Launched on 12 May, 2020 by the Government of India, Atmanirbhar Bharat Abhiyan or Self-reliant India Scheme 2020 is a funding support scheme for the MSME sector to boost and promote growth and increase employment opportunities in rural and urban areas across India. Its main features include:
Self-reliant India is a scheme focusing on the MSME sector and it does not mean cutting from the rest of the world. New MSME definition was introduced as mentioned:
MSME – Merged Criteria: Investment and Annual Turnover
Manufacturing & Services Sector, Both
Investment less than Rs. 1 crore
Turnover less than Rs. 5 crore
Investment less than Rs. 10 crore
Turnover up to Rs. 50 crore
Investment less than Rs. 50 crore
Turnover up to Rs. 250 crore
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