If you are an owner of a small business, you very well know how business loans can save your day. Whether you are just starting up a business or you wish to expand your business operations, business loans can lend a helping hand. Business owners are likely to need funds at any stage of the business cycle which is why many lenders have come forward to offer business loans to startups or small businesses. Small business loans ensure that no obstacle comes in the way of your business.
Lenders Offering Small Business Loans in India
|Lender’s Name||Interest Rate (pa.)||Repayment Tenure||Loan Amount|
|HDFC Bank||15.65% to 21.20% (Rack Interest Rate)||12 months to 48 months||Up to Rs.50 lakh|
|Tata Capital||19% onwards||12 months to 36 months||Between Rs.5 lakh and Rs.50 lakh|
|Bank of Baroda||Varies with tenure and type of advance||-||Up to Rs.5 lakh|
|Magma Fincorp||-||12 months to 48 months||Rs.3 lakh to Rs.2 crore|
|State Bank of India||8.25% to 16.95%||Up to 60 months||Rs.10 lakh to Rs.25 lakh|
|Lender’s Name||Processing Fee||Prepayment Charges|
|HDFC Bank||Rs.2,359 to Rs.88,500||
|Lender’s Name||Processing Fee||Foreclouser Charges|
|Tata Capital||Up to 2.75% of the loan amount plus GST||4.5% on the future principal outstanding plus GST|
|Lender’s Name||Processing Fee||Foreclouser Charges|
|Bank of Baroda||Up to 0.75% of the sanctioned limit||-|
The eligibility criteria for small business loans may vary from lender to lender but below we have listed the generic ones:
|Area of Business||Proprietors, partnership firms, self-employed individuals, private companies involved in the business of trading, manufacturing, or services|
|Age||Borrowers should be at least 21 years old during the time of loan application and should be aged less than 65 years during the time of loan maturity|
|Minimum Turnover||Rs.40 lakh|
|Minimum Annual Income||Rs.1.5 lakh p.a.|
|Profit||The business should be making profit for the previous two years|
Please note that the eligibility criteria may vary from lender to lender and hence, it is recommended that you check with the particular lender for the eligibility criteria.
Documents Required for Small Business Loans
|Application form||Filled and duly signed|
|KYC Documents||Business entity proof, partnership deed, incorporation certificate, shops and establishment certificate, Articles of Association (AOA)|
|Bank Statements||For the last 6 months|
|Photographs||Passport-size photograph of applicant/co-applicants|
Since many lenders including banks and non-banking financing companies (NBFCs) offer small business loans to their customers, it is easy for companies to receive financial aid for their business needs using this scheme. With multiple online EMI calculators available, borrowers can also plan their loans better beforehand to avoid loan rejections and manage their finances better. Additionally, most of the banks and NBFCs offering this kind of a loan provide online applications to allow their customers to keep a track of their loans after the amount is disbursed. Borrowers can remotely check details such as interest certificate, payment schedule, repayment history, etc. through these applications.
When an entrepreneur opts for this financing plan to fund his or her business venture, he/she has the option to repay the loan using a repayment method that is convenient to him/her. Since lenders understand the difficulties and underlying complexities involved in running a business, they might devise a personalised repayment plan before sanctioning the loan. This not only helps the borrower manage the business cash flow better, but also make timely loan repayments. Under this scheme, customers can also choose to increase/reduce the EMI amount or opt for the bullet payment method as per the financial condition of the business.
Due to minimal documentation and simple application process, this scheme is preferred by many entrepreneurs to fund their business requirements. Many banks and NBFCs provide online application method to the borrowers so that they can easily apply for this scheme without having to step out of their houses.
When a businessman applies for a loan under this scheme looking to start a new venture or expand his or her current company, he/she can be assured that the funds will be quickly disbursed to his/her account. Owing to the fast loan application and approval process, borrowers can get access to quick funds when applying for a small business loan.
Whether you are planning to start a new business or looking to expand/upgrade your current one, you will have the flexibility to opt from a wide range of customised solutions to suit your specific business need. This will help you choose a plan that suits the fund requirements of your unique business.
The interest rate of small business loans depends on various factors such as the loan tenure, market dynamics, the credentials of the applicant, the financial condition of the business, etc. Most government-backed financing schemes offered by banks and NBFCs offer loans at low interest rates to help business owners repay their debts on time, thereby, reducing the chances of a bad loan. Usually, these loans also have nominal processing fees and other one-time charges with no hidden fees.
Since a healthy amount of cash flow is required to keep a business running, these loans are a great way to gain access to funds in order to gain a competitive edge while increasing the amount of revenue generated. The funds from this loan can be used to start a new business branch, launch a marketing campaign, or upgrade an inventory to deal with the sudden demands of a seasonal business. Then, the profit earned from these routes can be used to repay the debt and for further reinvestment. Furthermore, most of the lenders do not specify how the funds should be invested. Therefore, the business owners have the complete flexibility to use it as per their business requirements.
Under the Income Tax Act, 1961, small business loans also offer tax benefits to the borrowers. Therefore, the interest paid on such small business loans are eligible for tax deductions.
Many banks offer small business loans to their customers without any collateral. Therefore, availing such loans means there are less chances of businesses losing their assets in case they default during the repayment of their loans. In such cases, the business is assessed based on its expected receivables and cash flow. Before applying for this loan, it is advisable that the entrepreneur consults the lender regarding the requirement for collateral to avoid any future conundrum.
Government: As mentioned above, the government has mooted special schemes to boost the capacity of small business units across the country. Loans are provided to the elderly, minorities, factory equipment or office expenditures among many others.
Micro loans: The maximum repayment term is six years. Microloans are offered provided there is a robust business plan and a profitable venture.
Business organizations: Large business conglomerates can offer financial assistance to small business units provided the latter show potential for growth and are lucrative in terms, turnover to repay the loan amount. Some examples include franchise loans and export financing. Documents required include a sound business plan, financial status report, credit ratings, and cash flow projections among many others.
Personal loans: Several banks offer personal loans anywhere from Rs. 10 to 25 lakh which are typically unsecured at 18 to 24%. The loans are repaid through installments.
Professional loans: These are unsecured loans provided to self-employed professionals such as chartered accountants, company secretary, doctors and so forth. It does not encompass manufacturing and processing units. The loan amount varies from Rs. 25,000 to Rs. 25 lakh depending on the financial status of the applicant, loan tenure and repayment capacity at a rate of interest which depends on the prime lending rate.
Project Finance: Provided for new long-term infrastructure or industrial projects with flexible repayment terms on the basis of the project assessment report.
Equipment Finance: Provided to buy new equipment or lease equipment for business units.
Working Capital Loans: Provided for daily business needs for smooth functioning of the units.
Bill discounting: Provided to ensure that your unit discounts bills before the maturity date.
Lease rental: Provides term loan against lease contracts to facilitate business requirements.
Financial advisory: Provided for assistance by financial experts.
Insurance: Provides finance for insurance solutions for better safety.
Trade loans: Provided to traders for starting a new business enterprise or expand the current business unit. The loan is repaid through Equated Monthly Installments or EMIs. The rate of interest is based on the prime lending rate (fixed and fluctuating). Some banks ask customers to submit collaterals such as land, National Savings Certificates, life insurance policies, etc. In addition, shares and bonds are also accepted as collaterals against which loans could be provided.
There are 3 ways by which borrowers can apply for small business loans. The first way is by visiting the official website of the lender, filling up the application form available with a few basic information, and uploading the necessary documents. After that, your details will be verified by the lender. Once the verification is completed, the loan amount will directly be credited to the bank account provided by you during the application process. You can also apply for a business loan through the official website of BankBazaar which offers a hassle-free and quick way of availing any type of loan.
The second way of applying for a business loan is to call up the customer care number of the lender whose representatives will guide you on the complete application process.
The third way to apply for a small business loan is to visit the nearest branch of the lender. Once you visit the branch, you will be asked to fill up the application form provided by the officials of the lender and submit it along with the necessary documents.
1. I have an idea for a startup. Can I apply for a business loan?
Answer: It can be really challenging to get a small business loan for a business idea as most banks prefer lending to businesses that have been running for at least 6 months. However, there are some NBFCs that may offer you loans based on your business idea. Remember to explore all the options available before you pick a specific lender for a business loan. If in worst cases, you are unable to find a lender to fund your business idea, you can always avail a personal loan and use it to fund your business idea.
2. How can I repay the small business loan I have availed?
Answer: You can repay the business loan availed in 3 ways – Post Dated Cheques (PDCs), Direct Debit, and Electronic Clearing Service (ECS). The last 2 ways are the preferred mode of repayment by most borrowers and lenders alike.
3. What is the maximum amount of loan that can be availed as a small business loan?
Answer: The maximum amount of loan that can be availed as business loan will vary according to a lot of factors such as type of business, the lender, credit score of the applicant, etc. The maximum loan amount can go up to Rs.2 crore based on the mentioned factors.
4. Do I have to provide any security or collateral to apply for a small business loan?
Answer: There are many lenders who will not ask you to provide a collateral or security for small business loans but there are also a few who might. Collaterals may, however, help borrowers get a higher loan amount as this will give confidence to the lenders that in case of defaults, they can sell the asset provided and recover the loan amount.
5. What is the EMI that I need to pay on the small business loan?
Answer: The amount of EMI will depend on the amount of loan you avail and also the repayment tenure you choose. You can use the EMI Calculator available on the website of BankBazaar under the ‘Finance Tools’ section to calculate the EMI on your business loan.
6. Is the interest rate on a small business loan floating or fixed?
Answers: Most lenders will offer a fixed rate of interest on small business loans which means that there will be no fluctuation in the interest rate during the chosen repayment tenure. A fixed rate of interest allows the borrower to predict his/her future payments.
7. What can the loan availed as small business loans be used for?
Answer: Small business loans can be used for a variety of purposes such as expansion of business to another town or city, increase the cash flow of the business, office renovation, purchase of raw materials, lease bigger office spaces, scale up the operations of the business, etc.
8. If I am engaged in khadi activity, am I eligible to avail the Mudra loan offered by the government?
Answer: Yes, khadi activities are eligible for Mudra loans. In fact, any activity that generates income in the areas related to manufacturing, trading, or services is eligible for availing Mudra loans.
9. What is the maximum repayment tenure offered on small business loans?
Answer: The maximum repayment tenure on small business loans will depend on the lender and the amount of loan taken. However, the maximum tenure offered by lenders is 60 months.
10. Is opening a fashion boutique eligible for a small business loan?
Answer: Yes. Since a fashion boutique will generate income, it is eligible for a small business loan.
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