A business loan is one of the most common means of financing small and medium-sized enterprises. Visit to know more here!
Capital is crucial to start, operate, and expand a business. However, financing your business via equity investing or crowd-funding can be challenging. In such a situation, business loans are your saving grace in India.
Read on to know more about India’s business loan eligibility criteria.
What Is A Business Loan?
A business loan is a credit facility that can help you pay for expenses such as employee salaries, office supplies, and rental space until your business is on track or until you receive funds from other sources.
Today, Indian banks and non-banking financial companies offer business loans with attractive interest rates, flexible payment terms, and many other benefits to help your business.
Types Of Business Loan
Banks, unlike equity investors, have robust structures and methodologies for lending depending on various factors. Therefore, before you apply for a business loan, you should familiarize yourself with the various business loan programs offered by the bank and apply for the right one.
For example, the government has many schemes available for MSMEs, which many NBFCs provide.
Typically, there are two types of business loans –
1. Secured Loans
These are loans where the borrower pledges an asset as collateral. During non-payment of the loan amount or default, the collateral ownership will transfer to the bank, non-bank financial company, or lender. For secured or small business loans, it is essential to meet this eligibility to post collateral.
Financial institutions, then, resell collateral to recover outstanding loan payments. Lenders will not immediately confiscate your collateral. If your EMI payment is a few days late, your bank or NBFC will give you time to pay. However, if you continue to fail to pay, you will need to forfeit the collateral.
2. Unsecured Loans
An unsecured loan is one where the risk lies more with the lender than with the borrower. For business funding, getting an unsecured loan can be a little tricky. However, if the amount you need is small, you can avail of a business loan.
It is noteworthy that the approval levels for unsecured business loans depend on the creditworthiness of the borrowing bank or non-bank financial company. So, if you’re looking for an unsecured loan, ensure your business has well-defined capital needs and commendable credit history.
Eligibility Criteria For A Business Loan
While the detailed eligibility for business loan criteria would differ for each lender, it is almost equivalent in most cases. Find the most common rules are as below –
1. Age –
The applicant’s minimum age should be at least 18 years. The upper age limit can range from 55 years to 70 years, depending on the lender.
2. Nationality –
The applicant must be an Indian citizen, holding no criminal records.
3. Credit Score –
Credit score is the most crucial and essential part of lending. A score of 700 or above is considered excellent. Additionally, the borrower’s credit history should be as clean as possible, with no defaults with any bank or financial institution in India.
4. Type of business –
The company must incorporate itself as a private or public limited liability company, limited liability partnership (LLP), or sole proprietorship or partnership. Individuals, SMEs, MSMEs, retailers distributors, and manufacturers engaged solely in the service, trade, and manufacturing sectors are also eligible for business loans.
Documents Required For A Business Loan
The primary documents required for getting a business loan in India are –
• Duly filled application form
• Passport-size photographs
• A well-defined, self-drafted business plan
• KYC documents (PAN card, Aadhar Card, Passport, Utility Bills, etc.)
• If the business is in partnership, then KYC documents of all the partners might be required.
• Bank statement of the past year
• Income Tax Return (ITR) for the last three years
The above list might have additions and subtractions due to the lender-specific requirements.
