Frequently Asked Questions

 

Anyone who owns a small business would know how you can always do with more funds, regardless of whether you are just starting out or are in the expansion phase. This requirement of business owners can be adequately met with the help of business loans. A good business loan can serve as the perfect solution for ensuring that your business not just receives the necessary financial support, but it also gets what it deserves, without putting any strain on the bottom line. Business loans are mainly unsecured loans taken to fund different types of business needs such as inventory, equipment purchase, hiring staff, increasing working capital etc. They can be availed by self-employed individuals as well as businessmen provided they meet the eligibility criteria laid out by the lenders.

It’s normal to have many questions when you think about taking a business loan, for instance, how much loan can you take, what will be the interest rate, will there be any charges involved, the repayment time and more. Following are some frequently asked questions related to various aspects of business loans. Hope these questions and answers will help you gain a better understanding of this loan type and take you a step ahead in obtaining financial help for your business.

Business Loan Eligibility

The loan amount offered by banking establishments and NBFCs for business purposes is usually pretty high compared to the regular personal loans or home loans. In general, you can take a business loan anywhere in the range of ₹ 50,000 to ₹ 1 crore, or sometimes even higher depending upon various factors, including your requirements and profile. Essentially, it is how well you meet the eligibility criteria laid out by the lender that will determine the quantum of the loan. The lending establishment will factor in your annual turnover and profit, type of entity, banking relationship, credit rating, business age, business stability and outstanding liabilities, among various other aspects, before deciding the business loan amount. You can make use of the business loan eligibility calculator available on our website to quickly learn the loan amount your business is eligible for.

You can avail a start-up business loan offered specifically to individuals interested in starting their own business venture or who have an already existing start-up business, but require funds to expand their operations or to meet their operating costs. This business loan product has been designed, and is offered specifically to new businesses with little or no credit history.

However, please keep in mind that it can be sometimes very difficult to get a start-up business loan just based on an idea, as majority of banks prefer extending credit to businesses which have already been running for minimum time period of six months. Having said that, there are some Nonbanking Financial Companies (NBFCs) that might still extend you credit depending upon your business idea. It’s important that you explore all possible options before going ahead with a specific lending establishment. In the worst-case scenario, if you don’t find any lender willing to back your business idea, there is always the option to avail a personal loan, and use it any way you like.

As mentioned above, the maximum loan amount you can avail in the form of a small business loan will vary from person to person, based on multiple factors like the credit score, the lender type, business type, age of the business, existing relationship with the lender, annual turnover and profit and outstanding liability, among many others. In general, the amount of loan extended to small businesses can go up to ₹ 2 crore based on these factors. Please feel free to use the business loan eligibility calculator available on our website to quickly learn the maximum amount of small business loan you are eligible for.

You can use a small business loan for various purposes like increasing the cash flow of the business, leaving a bigger office space, office renovation, expanding business to a different city or town, scaling up operations, purchase of raw materials, adding to working capital, purchase of machinery, debt refinancing etc. Please keep in mind that how you are allowed to use the small business loan will also depend upon the type of loan you apply for. There are various government loan schemes for small businesses, for instance, MSME business loans, MUDRA loans, Credit Guarantee Fund Scheme for Micro and Small Enterprises, National Small Industries Corporation Subsidy etc. which are all meant for specific purposes.

Yes, as opening up of a fashion boutique will be meant to generate some income for yourself, and will be considered a small business, you will be eligible for a small business loan. Please note, to avail this type of loan, you will need to meet all the conditions laid out by the lending establishments for the normal small business loans. Once availed, you’ll be able to use the loan amount to purchase machinery, buy raw material, lease out a retail space and incur other pertinent expenditures with the loan amount.

Yes, you are allowed to apply for a business loan even if you have bad credit. There are both secured and unsecured business loans available for people with bad credit. In case of a secured loan, you might be asked to pledge any of your assets such as property or gold, as a collateral. An existing company can also pledge its assets for taking a business loan. For unsecured business loans with bad credit, you might still be able to get one, but most likely at a higher interest rate. Eventually, it will all come down to giving a proper assurance to the lender that you will indeed be able to repay the business loan.

Secured business loans are simply loans taken for enhancing or starting a business, with the help of a collateral or security. You will be asked to pledge any of your assets or property to serve as collateral. Most lenders accept land, industrial, commercial and residential properties in the form of a collateral. An asset can be anything of value, for instance, gold, government bonds, vehicle, an equipment of sufficient value etc. Please note, you will be essentially promising the lender that you will repay the business loan in full, and in the event you are unable to do so, the lender will be free to use the collateralized asset or property to legally recover its losses.

The banking establishment or NBFC might ask you to bring in a co-applicant or guarantor, depending upon your eligibility for the business loan. Bringing in a co-applicant or guarantor can significantly improve your chances of getting a business loan as it will give lender an assurance that there is someone else who can step in, in case of default. A co-applicant is normally someone who is a close relative, for example, spouse or blood relative. Although spouse is the most preferred and commonly seen co-applicant by the lenders, this person can even be your sister, brother, mother or father. In case of companies, the company’s co-owners can be the co-applicants too. A guarantor can be any of the above, or even other relatives or friends.

Yes, you are allowed to avail a business loan in India provided that you bring in a resident Indian as a co-applicant in the loan application, along with a power of attorney. NRIs can avail a business loan to buy commercial property for carrying out business activities in India. Such loans are extended against NRE, NRO and FCNR (B) term deposits. Banking establishments are also allowed to extend rupee loans to NRIs as long as their business meets the criteria laid out by the bank. The lenders normally put a restriction that the funds will not be used towards: plantation or agricultural activities, chit fund business, real estate business, farm house construction, trading in TDRs (Transferable Development Rights) or a Nidhi company. Such business loans are usually approved for a tenure ranging from 1 to 15 years, while some lenders might insist on no more than 5 years’ tenure.

Whether you’re allowed to take a business loan on your industrial property or a vacant commercial property is something that will depend entirely on the prospective lender. While some banks and NBFCs don’t accept any industrial and vacant commercial property as an acceptable security/collateral against business loans, there are others that might offer you credit in the form of Loan against Property (LAP). However, this type of loan is normally a personal loan variant and doesn’t fall under the business loan category. Hence the offered interest rates might be different from what are applicable on business loans.

It will depend upon the kind of loan you are currently running with the bank, the policy of the bank vis-à-vis such top ups and the extent of top up you require. Most of the banking establishments offer top up loans to their existing customers after analyzing their repayment behaviour and ascertaining that they meet the minimum requirements. These top up loans are also extended to existing business loan customers who might require more funds at a later date.

Business Loan Charges

The processing of a business loan involves various charges such as the processing fee, interest rate, documentation charges, goods and services tax (GST), stamp duty (and other statutory charges) etc. To tell you a bit more about some of these charges, processing fee is the amount charged by the lender for end-to-end processing of the business loan application. This processing fee is normally in the range of 1% to 3% of the loan amount or a minimum / maximum figure set by the lender. It is deducted from the business loan amount at the time of disbursal. Stamp duty and other statutory charges are applicable as per the laws of the state. Please note that you should be aware of all such charges and should even compare different business loan products based on them, in order to avail the best business loan deal.

Normally you won’t be required to pay any additional charges, over and above what are specified in the schedule of charges. However, some of the charges like intimation of mortgage, stamp duty etc. might not be included in the lender’s schedule of charges, and treated as additional charges. These charges are paid directly to the government on the basis of the stamp duty grid applicable to your respective state. Please note, it is always better to inquire and learn about such additional charges before going ahead with a specific business loan product.

Majority of the lending establishments go with a fixed rate on the small business loans, implying that there will be no fluctuations or changes in the interest rate (based on market conditions) over the repayment tenure of the loan.

In addition, most of the monthly payments during the initial part of the repayment tenure will be used towards servicing the interest component. On the other hand, the principal loan amount will be serviced during the later part of the repayment tenure. Such fixed interest rate enables the borrower to gain a better understanding of his/her future payments and plan his/her finances accordingly.

It is highly advisable that you do all the due diligence before taking a business loan so that you very well understand your capability of making the monthly EMI payments on time. In the event that you miss an EMI payment or there is an ECS bounce, the bank or NBFC will levy certain penalties or ECS bounce charges. Not just that, the matter will also be reported to the credit agencies and will reflect in your credit report. Based on the regularity and severity of such misses, it might also adversely impact your chances of obtaining another loan product such as a car loan, home loan, personal loan etc. in the future. Furthermore, in the worst case scenario, the lending establishment might also initiate legal proceedings against you.

Busniess Loan EMI

A business loan can be repaid in multiple ways, of which Equated Monthly Instalment (EMI) method of repayment is considered the easiest. When you opt for the EMI option, the business loan amount will get divided into equal fixed sums payable on a monthly basis until the full repayment of the loan. This monthly payment comprises of the principal loan amount and the interest on it. The exact amount of EMI will depend entirely on the loan amount you have taken, the applicable interest rate and the repayment tenure of the business loan. You can make use of the EMI calculator available on our website to quickly calculate your monthly EMI.

Busniess Loan Process

When you apply for a business loan, the banking establishment or NBFC will ask for all kinds of documents to carry out efficient risk assessment and make a sound decision about rejection or sanctioning of the business loan. This exercise is to make sure that you’ll be able to repay the debt within the decided repayment period. All they want to ensure is that their investment is safe. Some of the commonly known documents asked for in this regard are: filled up business loan application form, valid identity proof of the applicant, residence proof, age proof, financial documents (bank statement, copy of IT returns, CA audited balance sheet and P & L statement), sole proprietorship’s identity proof, creditors statement, private limited company’s or partnership firm’s identity proof.

The process of a availing a business loan has been made extremely easy on our website. You can check all the business loan offers available to you depending upon your eligibility criteria and the amount of business loan you are seeking, and can then opt for the NBFC or banking establishment whose offer seems most attractive to you. However, please be aware that the final decision of approving the business loan application will rest with the sanctioning officer.

Before you even think of applying for a business loan, it is important that you ensure that it is indeed the best time for you to go for such a deal. You will need to ask yourself many questions like – Will you be able to devote time to this process? Is your credit score looking good? Are your financials in best health right now?

Prior to delving into the process of looking for best business loan offers on our website, you should have a fair idea about what you might qualify for. The three important factors you must pay heed to right from the beginning are: time in business, credit score and annual revenue. Once you have covered all these aspects, you can visit the business loans section on our website and follow the steps detailed below:

  • Step 1 – In the first step, you will need to fill up all the details asked for in the business loan eligibility calculator, for instance, the desired loan amount, existing loan commitments, interest rate, tenure of the loan and net income per month. Once you provide all these details, you will learn about your eligibility for the expected business loan amount. If found eligible, you will be told about the monthly EMIs. In the event that you qualify for a higher business loan amount, you’d be told about the figure and what will be the EMIs.
  • Step 2 – The second step of the process involves comparing different business loan offers from different banking establishments and NBFCs, based on your eligibility. You’re free to go with any offer depending upon your needs.
  • Step 3 – Lastly, you must submit the online business loan application through us and then someone from our team will contact you and help you with the rest of the process.

The amount of time taken for disbursal of a business loan might vary from lender to lender. It also depends upon how well you meet the eligibility criteria and whether you are seeking a secured or an unsecured business loan. As a secured business loan would require further checks and verifications of the documents related to the pledged collateral / security, it can take a longer time for disbursal. In most cases of unsecured business loans, if all your documents are in order, it is highly likely that the bank or NBFC might approve your business loan application in around 48 hours, followed by successful disbursal of the business loan in the next few days.

You can place a request for all these documents directly with the lending establishment, by calling their customer care number or writing to their customer care email address. Most of the reputed banking establishments and NBFCs provide their contact details quite prominently on their official websites. Please keep in mind, there might be applicable charges for retrieval of all such documents from the lending establishment. You can even reach out to our team member who helped you with the business loan.

Normally there is no application fee charged when you apply for a business loan online. However, it is best to check with the prospective lending establishment if there are any such charges involved. Please note, you are free to go through all the business loan offers you are eligible for on our website and then fill up the online application form without paying any charges.

Busniess Loan Repayment

You can repay the business loan through Equated Monthly Instalments (EMIs), which are taken from you in any of the following three different ways:

  • Through Post- Dated Cheques (PDCs)
  • Via Electronic Clearing Service (ECS) or
  • By Direct Debit

Majority of the people who take a business loan opt for the last two methods. When opting for the ECS mode of the payment, you will need to provide a mandate to your bank, authorizing the lending establishment to debit the monthly payment through your account. Direct debit also works quite like ECS. In this mode of payment, you give the lending establishment the right to take funds from your account on a monthly basis. The primary difference between the two is that while in the ECS, the amount to be debited can be altered by a request from you to the bank, it can’t be done in case of direct debit as the amount stays fixed.

The maximum repayment tenure in case of small business loans depends entirely on the lending establishment and the loan amount under consideration. While the norm is a maximum time period of 60 months, certain types of business loans, especially the ones extended to NRIs can have a repayment tenure extending up to 15 years. You can even reduce the repayment tenure of your business loan by making a part pre-payment in between.

The maximum repayment tenure in case of small business loans depends entirely on the lending establishment and the loan amount under consideration. While the norm is a maximum time period of 60 months, certain types of business loans, especially the ones extended to NRIs can have a repayment tenure extending up to 15 years. You can even reduce the repayment tenure of your business loan by making a part pre-payment in between.

Yes, most of the lenders allow prepayment of the business loan. However, it depends entirely on the business loan policy of the lending establishment. In general, majority of the lenders allow you to make a prepayment after 6 months of the loan disbursal date, and you’re allowed to do it only once a year. Usually, the prepayment amount has to be a minimum of ₹ 50,000. Regardless, it would be best to check with your lender about their exact prepayment policy.

Please also keep in mind that there might be certain prepayment charges applicable whenever you choose to use this option. For instance, in case of HDFC Bank, prepaying a business loan from 7 months to 24 months after the disbursal will attract a prepayment charge of 4% on the principal outstanding. It becomes 3% of the principal outstanding if you prepay from 25 months to 36 months. Making any prepayment after 36 months attracts a prepayment charge of 2% on the principal outstanding.

In most cases, it doesn’t take lenders more than 15 days’ time period from the date of foreclosure of the business loan, to complete all formalities and return the property papers to the owner. However, it would be best to check with your lender about the exact timeframe.