Business Loan FAQs
A business loan is offered by various banks in India at a higher interest rate than a secured loan due to higher risk involved as you are not asked for any collateral to ensure repayment.
These loans allow you to repay them from 12 to 60 months. A Business loan may help you gain financing or pay off your bills but there a few things you should know before you take out a loan.
What is a Business Loan?
Business Loan is an unsecured loan offered by almost all Banks, Non Banking Finance Companies (NBFCs), etc. without asking for any collateral, guarantor or hypothecation of any assets. Its tenure ranges from 1 year to 3 years.
What is the need for getting a Business Loan?
Business Loan is a finance/ credit provided by banks and NBFCs to attain the funds for expansion of business, purchase of assets or to meet the expenses of the business. You can make use of it for any purpose of your business be it a short term or long term.
For which entities is the Business Loan useful?
Business Loan is useful for various entities like proprietorship firm, partnership firm, LLP, private limited company or public limited company. Even an individual can avail business loan.
What are the usages of Business Loan?
There can be many usages of a business loan which depends upon the borrower. This loan can be used for working capital, meeting short term cash flow requirements or it may be a term loan which may involve investments into plant and machinery, equipment purchase, etc.
What are various factors considered for eligibility for providing Business Loan to an entity?
Business Loan eligibility depends on the following factors:
- Repayment Capacity
- Credit score of the loan applicant/ co-applicant
- Your income i.e. last 2 years financials of the borrowing entity
- Information like Debt Service Coverage Ratio that the lender whether the borrower will be able to service the EMI for the current loan.
If I don't have a good Credit Score then can I still apply for Business Loan?
Yes, you can apply for the business loan even if you don't have a good credit score. In that case, you have to give an assurance to bank/ lender that you'll be able to repay the loan.
What is the minimum and maximum unsecured Business Loan amount that the borrower can avail?
A borrower can avail an unsecured business loan which generally ranges from Rs. 3 lakhs to Rs. 50 lakhs.
What is the tenure of an Unsecured Business Loan?
Unsecured business loan tenure can range from 12 months to 36 months.
What is the mode of repayment of a Business Loan?
You can repay through in equal monthly instalments (EMIs), Post Dated Cheques, Electronic Clearance Service (ECS) or through direct Debit/ standing instructions.
What are the benefits of having current account with the bank?
If you already maintain a current account with any bank, you get preferred Processing Fee, fast processing of your loan application and simpler documentation.
Is it possible to pre-pay my Business Loan?
Yes, it is possible. You can pre-pay the loan generally after 6 months from the date of disbursal of loan. Further, it can be done once in a year only. Also, there is a requirement of some minimum amount of making the pre-payment.
Can I make part payment of my Business Loan?
Some banks/ lenders allow for part payment of business loan while some others have restrictions on how many times in a year you can part pay and also the minimum and maximum amounts you can part pay.
What is the process of availing the Business Loan?
You need to follow below mentioned process in order to avail a business loan:
- Visit to your bank/ lending institute
- Obtain and fill up Business Loan Application Form
- Submit the form along with required documents
- Execute agreement with the lender
- Sanction of business loan
- Disbursal of business loan
How much time is required for sanctioning of business loan?
If you have filled up your application form in all respect completely and submitted all the documents required by the bank/ lender, then it usually takes 4 to 10 working days to get a sanction of Business Loan.
What factors should I consider in the lender for allying for business loan?
The most important factor is interest rate charged on loan. Secondly, the loan tenure and loan processing time. Finally, whether the lender is ready to provide full loan amount required by you.
Is there any charge, if any of ECS or cheques bounces?
Yes. The bank/ lender will levy certain ECS/ cheque bounce charges or penalty. Further, that will also get reported in your credit report and will have negative impact on your credit score.
How much time does it take to get disbursement of business loan?
If your business loan application is complete in all respect then the disbursal of business loan will be within 5 to 10 working days of your submitting the completed application form and the documents.
How can I close my Business Loan Account?
You can close your loan anytime during your tenure with or without any foreclosure penalty (which is dependent on the lender). You need to fully repay your loan with interest before closure of your business loan account.
Can I register a Power of Attorney (POA)?
EMI is an abbreviation for "Equated Monthly Instalment" which is the amount you will pay to bank on a specific date each month till the loan is repaid in full.
The EMI comprises of the principal and interest components. These components are designed in a way that the interest component is much larger than the principal component during the initial years of your loan, while the principal component is much larger than the interest component during the later years of the loan.
You can use our EMI calculator to find out your monthly payments based on the loan amount, the rate of interest and the repayment period.
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