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    Small Business Loans

    Unlike lending to individual consumers, small-business lending is, by and large, considered comparatively complex in addition to being more competitive. Small business loans, offered to small business units to enable them to efficiently and successfully run their units, are also characterised by various incentives aimed at reducing their expenditure.

    Several lenders provide secured loans with tenures ranging from three to five years to small business units catering to various business requirements such as working capital requirement, purchase of state-of-art industrial equipment, expansion of business units, start-ups, upgradation of technology and establishment of new buildings among many others. Some financial institutions may offer various products such as overdraft facilities for the benefit of customers.

    Small-business loans took a beating post the 2008 financial crisis with several major banks staying away from doling out loans. However, subsequently, the small-business loans market has seen an upswing with several financial services firms and institutions providing loans. According to market experts, small business loans for start ups have a high risk factor. Nevertheless, small business establishments can acquire loans provided certain requirements are in place such as robust equity to sustain the business operations, working capital and timely and efficient resource management among many others. The lender after reviewing cash flow projections and financial statements gauges your ability to repay loans in the long term.

    Things to do before applying for small business loans

    The borrower has to consider all costs associated with setting up a new unit such as product inventory, manufacturing equipment and raw materials. Other costs include establishing legal structure and trademarks in addition to several administrative costs such as business insurance, postage, product packaging, utilities and rent. In this day and age, one has to also consider costs associated with computer hardware and software, maintenance and internet access among others.

    Different banks have different requirements to provide small business loans with the exception of some some basic documentation.

    • Some of the financial documents requested by most banks include financial statements of the past two or three years, balance sheets, income statements in addition to the current financial statements.
    • Also, one has to maintain records of accounts payable and accounts receivable among others.
    • Companies should review their business profiles, analyze their credit requirement and work on a blueprint on how to pay back their loans.
    • The lender may ask the borrower to not only submit a profile of the company in terms of its size and products but also profiles of owners or members of the management.
    • The borrowers may enquire about the kind of industry the business unit caters to, product(s) or service(s) offered, annual sales, growth estimates, headcount in terms of the total number of employees in the business unit, the estimated volume of customers, account keeping, and delivery mechanisms among many others.

    Eligibility criteria for small business loans

    The following is the broad eligibility criteria for availing of small business loans in India. The main requirements for acquiring small business loans are the following:

    • Credit history: Borrowers should be aware of their credit report to ensure that it’s up-to-date and accurate. Having a sound credit history is of paramount importance to ensure that lending institutions are favourable to providing finance for your business unit. Financial institutions review your credit report before reviewing and subsequently approving or rejecting your loan application.
    • Business feasibility: You have to make profit and loss projections for up to a year in some cases. One has to follow industry standards while projecting your profits and losses. If you don't follow industry standards, or you don't know what those standards are, try to make explicit any assumptions you are factoring into your projection. Borrowers have to prepare detailed pro-forma statements which has to include projections to help lenders gauge the feasibility of the project or unit in the near future.
    • Business plan: One of the key determinants which will play a key role in acquiring a small business loan is a robust business plan. The lender needs to be convinced that the business proposition is sound in terms of financial viability. The lending institution must be satisfied with the overall plan layout including capital estimates for start-ups, operations outflow in terms of employees and marketing, assets in terms of infrastructure and equipment and the capacity to pay off debts.

    Features of small business loans

    Small business loans can be either backed by assets in that some assets are offered as collaterals, based on which a loan is sanctioned typically with comparatively low interest rates. Small business loans can also be backed by cash flow in that loans are provided depending on revenue streams, business model and balance sheets and at comparatively higher rates. Several public sector banks such as the State Bank of India, Bank of Baroda, Punjab National Bank and private banks namely ICICI, HDFC and Axis among others offer small business loans to gain a foothold into the rural and semi-urban markets.

    While the aforementioned banks have the incredible opportunity to tap into hitherto untouched or virgin territories and gain access to an under-banked population, they also face several challenges in that there are various risks involved such as non performing assets, inadequate capital and even low profitability among many others. According to a recent government report, 5.8% of small business units in the country receive finance by finance institutions, 2.05% get funding by non-institutional streams while 92.77% are self-funded.

    Benefits of Small Business Loans

    • Easily accessible

      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 so as 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.

    • Multiple repayment options

      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.

    • Hassle-free application process

      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.

    • Quick fund disbursal

      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.

    • Customisable solutions

      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.

    • Affordable interest rates

      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.

    • Helps manage business finances better

      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.

    • Tax relief for businesses

      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.

    • No collateral required

      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.

    Small business loans from banks

    Most banks offer loans to small businesses if they get clear profit estimates, failing which, it may prove to be an uphill task for investors to acquire a loan. Several banks in India offer business loans of various types and categories for the benefit of customers. For instance, IDBI Bank provides finance to MSMEs including a wide array of products and services such as listed below.

    • Vendor Finance: Offers working capital and bills discounting facility.
    • Collateral Free Loans: Credit for up to Rs. 1 crore sans collaterals.
    • Sulabh Vyapar Loan: Loans to traders at attractive rates.
    • Dealer Finance: To provide Liquidity to the distribution chain partners.
    • Medical practitioners: Finance to doctors for establishing clinic or buying equipments.
    • Laghu Udhyami Credit Cards: Finance to small retail traders, artisans and MSE units.
    • Professionals & Self-employed: Scheme for professionals and self-employed.
    • Credit card receivables: Offering finance against payments through credit/debit cards.
    • Loan against property: Finance against property for business needs.
    • SME Smart Line of Credit: Finance via pre-approved credit limits.
    • Small Road & Water Transport Operators: Helps transport operators get vehicles.

    Some other examples of banks offering finance to small business units include ICICI Bank which offers ‘office equipment loans' (Rs. 30,000) for a period of 12 to 36 months on the basis of collateral provided. GE Money India provides personal loans to small business units at at 16 per cent. Also, Fullerton India offers vyapaar scheme for the self-employed and small business units with a turnover of less than a Rs. 2.5 crore. Citibank provides loans up to Rs. 25 lakh sans collaterals in addition to unsecured overdraft for around Rs. 2 crores. Intriguingly, interest is charged only on the loan amount used by the borrower. Oriental Bank of Commerce provides loans for up to Rs. 25 lakh sans collaterals depending on the proven track record of the borrower.

    Small business loans in India

    Banks in India are increasingly tweaking their lending models to make them flexible to provide more loans to small business units. Bankers are also considering ‘credit surrogates' to increase lending to small business units.

    Intriguingly, several banks in the country have 'pre-approved loans' to facilitate greater ease of transactions. What’s more, loans are also being provided against stocks and mutual funds among many other assets. Several banks are offering products to suit specific requirements of a profession. For example, ICICI and HDFC provide loans to transporters. Likewise, several banks have created products to offer loans for pharmaceuticals, gems, construction and tourism among others. Several leading banks are acknowledging that there is a huge market to be tapped in the unorganised sector in tier-II cities, towns and rural areas such as shopkeepers, traders and commission agents (who typically look for EMI-based personal loans sans collaterals), to name a few.

    According to conservative estimates, small business units in the country offer employment to over 106 million. Also, a small percentage of over 57 million small business units across India are supported by institutional finance, leaving the rest to fall prey to private lenders. The government, therefore, has mooted several measures to come to the rescue of small business units. The central government set up the National Manufacturing Competitiveness Council to boost the manufacturing sector. The Reserve Bank of India (RBI) also plans to issue some guidelines to banks to offer more small business loans including reducing interest rates. Banks have been asked to register a 20 per cent year-on-year growth in terms of offering credit to small enterprises.

    What’s more, the current central government has instituted a separate ministry for SMEs (MSME). The government also announced India Opportunity Fund running over 800 million USD (via SIDBI) to help small business units. The National Small Industries Corporation Limited (NSIC) facilitates distribution of products and raise awareness of technology in small units. It is common knowledge that the National Bank for Agriculture and Rural Development (NABARD) provides credit facilities to cottage industries. Also, the World Association for Small and Medium Enterprises (WASME) India chapter supports small business units.

    Types of small business loans in India

    The MUDRA (Micro Units Development and Refinance Agency Ltd) Yojana launched this year offers loans for up to Rs. 10 lakh at low interest rates. MUDRA will cater to over 5 crore self-employed persons. The Pradhan Mantri Mudra Yojana, which currently has around Rs. 20,000 crore at its disposal, would be a subsidiary of SIDBI.

    Some of the different kinds of business loans offered in India are the following:

    • Government: As mentioned above, 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. Micro loans are offered provided there is a robust business plan and a profitable venture.
    • Business organizations: Large business conglomerates can offer finance 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 instalments.
    • 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 in addition to shares and bonds among others are also accepted against which loans could be provided.

    Small Business Loans Reviews

    • ICICI Bank Personal Loan
      "Good in Service"
      0.5 5.0/5 "Blown Away!"
      I have taken a personal loan with ICICI. I am a customer of ICICI from the past 7 years and i am a happy customer of ICICI. The loan was approved instant , it was approved within seconds. There are no documentation work and with just one click things were taken care. Also the interest rates were reasonable.
      Was this review helpful? 1
      , new delhi
      Reviewed on Jan 22, 2019
    • Axis Bank Personal Loan
      "Time being very helpful loan"
      0.5 5.0/5 "Blown Away!"
      I have purchased a personal loan from Axis bank 2 years ago. From the offer they have ready to give the immediately hence i chosen them. They have sanctioned the loan in 3 days. They have offered me a interested in 17% and they have offered me a tenure period of 36 months. I can do the pre-closure any month after 3EMIs.
      Was this review helpful? 1
      , hyderabad
      Reviewed on Jan 22, 2019
    • ICICI Bank Personal Loan
      "Excellent service"
      0.5 5.0/5 "Blown Away!"
      I have been applied ICICI bank credit card , the loan amount they have given me was sufficient, the rate of interest they have charged me up to 15% it is nominal, the processing fee they have charged me up to 2000 it is nominal. Their service is good. There is no hidden charges . Still the loan is running.
      Was this review helpful? 0
      , new delhi
      Reviewed on Jan 22, 2019
    • Standard Chartered Bank Personal Loan
      "Very Good Service"
      0.5 4.0/5 "Great!"
      It was quite a good experience i had with this personal loan where the process in getting this loan was simple. The loan amount was fine and the interest rate with them was also nominal. There was no additional charges which they had made so far.
      Was this review helpful? 1
      , hyderabad
      Reviewed on Jan 22, 2019
    • ICICI Bank Personal Loan
      "Good Loan"
      0.5 4.0/5 "Great!"
      Purchased my personal loan from ICICI since I'm holding the salary account with the same. I bought the loan 5 years back without any documentation. Within a week, they have sanctioned the loan. They have not provided the partial payment and pre-closure facility.
      Was this review helpful? 0
      , bangalore
      Reviewed on Jan 22, 2019
    • HDFC Bank Personal Loan
      "Good service"
      0.5 4.0/5 "Great!"
      The experience with this loan has been quite good and the loan amount which they had provided has been sufficient as well. Their customer support and the staffs had been helpful during the process and the loan amount which they had provided was sufficient as well. There has not been any extra charges which they had made other than the processing fee.
      Was this review helpful? 1
      , hyderabad
      Reviewed on Jan 22, 2019
    • YES Bank Personal Loan
      "Good service"
      0.5 4.0/5 "Great!"
      My experience in getting this loan has been quite good and the loan amount which they had provided has been sufficient as well. The interest rate with them has been quite good when compared with the market rate. There was some charges which they had made as processing fee and their staffs had also been responsive as well.
      Was this review helpful? 0
      , hyderabad
      Reviewed on Jan 22, 2019
    • Bajaj Finserv Personal Loan
      "Good service"
      0.5 4.0/5 "Great!"
      The experience with this loan was quite good and the process had been simple. The loan amount which they had provided has been sufficient and there has not been any sort of charges which they had made additionally. Their customer support team had also been helpful as well.
      Was this review helpful? 1
      , hyderabad
      Reviewed on Jan 22, 2019
    • ICICI Bank Personal Loan
      "Good in Need"
      0.5 4.5/5 "Excellent!"
      I have taken a personal loan with ICICI Bank and the loan is still running. The rate of interest is reasonable and there was less documentation work at the time of applying. My application was processed on time and there was no delay. The response was quick.
      Was this review helpful? 0
      , mumbai
      Reviewed on Jan 22, 2019
    • RBL Bank Personal Loan
      "Good Loan services"
      0.5 5.0/5 "Blown Away!"
      They have offered me a interest rate of 14.5%. I have purchased a loan amount of Rs. 1. 50 lakhs from RBL bank. They have processed the loan immediately and they have charged me a processing fee of Rs. 499. I have chosen the tenure period of 24 months.
      Was this review helpful? 0
      , ahmedabad
      Reviewed on Jan 22, 2019
    • HDFC Bank Personal Loan
      "Good Service"
      0.5 4.0/5 "Great!"
      I carry a HDFC credit card and on that i had taken a perosnal loan. I was in need of loan and the moment i sent a request my request was taken care and it was processed with in 10 minutes. The rate of interest is bit high but apart from that i am happy with the services.
      Was this review helpful? 0
      , mumbai
      Reviewed on Jan 22, 2019
    • HDFC Bank Personal Loan
      "Excellent service"
      0.5 5.0/5 "Blown Away!"
      I have been using personal loan with HDFC bank, they have given me good loan amount,it is sufficient for me, as per my requirement they have given me, and the rate of interest they have charged me up to 13%,which is nominal compare to other market value,and the processing fee they had charged around 1.5% was nominal, there is no extra charged, still loan is running 2 Emi installment i have been paid.
      Was this review helpful? 0
      , bangalore
      Reviewed on Jan 22, 2019
    • ICICI Bank Personal Loan
      "Good service"
      0.5 3.0/5 "Satisfactory"
      The process in getting this loan was good but the interest rate with them has been a little high. The loan amount which they had provided has been sufficient and there has been some charges which they had made as well like the processing fee. Their customer support has also been responsive.
      Was this review helpful? 0
      , bangalore
      Reviewed on Jan 22, 2019
    • Citibank Personal Loan
      "Good service"
      0.5 3.0/5 "Satisfactory"
      I am not that much satisfied with this experience with this loan, because the interest rate with them has been higher than what they where promising initially, where the promises where not fulfilled. The loan amount has been fine, and there has been some processing fee as well. Their customer support has also been helpful as well.
      Was this review helpful? 0
      , bangalore
      Reviewed on Jan 22, 2019
    • Axis Bank Personal Loan
      "Good service"
      0.5 3.0/5 "Satisfactory"
      I had taken this loan a long time back and it was closed recently. The process in getting this card has been smooth and simple where it had taken just two to three days in getting this loan. The loan amount which they had provided has been sufficient and the interest rate was nominal, the charges has also not been high.
      Was this review helpful? 0
      , bangalore
      Reviewed on Jan 22, 2019
    • Bajaj Finserv Personal Loan
      "Excellent Service"
      0.5 5.0/5 "Blown Away!"
      I had taken this Personal loan from them a very long time back and the experience i had during that time was very good. There was no hassle faced through out the process and they offered me with a good rate of interest when compared with the market rate. There was no extra charges which they had made and their customer support was also helpful.
      Was this review helpful? 0
      , goa
      Reviewed on Jan 22, 2019
    • Bajaj Finserv Personal Loan
      "Excellent Service"
      0.5 5.0/5 "Blown Away!"
      I had taken this loan a while back and the process in getting this loan was hassle free. They had provided me with a loan amount of 2,00,000 which was sufficient and there has not been much charges which they had made. The interest rate with them was very less and i personally know some of their staffs their and they are very much friendly.
      Was this review helpful? 0
      , goa
      Reviewed on Jan 22, 2019
    • Bank Bazaar Personal Loan
      "Keep up the good work"
      0.5 4.0/5 "Great!"
      Bankbazaar has a tie up with different bank and its a one stop shop where i can compare about all the financial products. Through online, i have came to know about this website. This is the first time i have used the website and my experience is good,
      Was this review helpful? 0
      , new delhi
      Reviewed on Jan 22, 2019
    • HDFC Bank Personal Loan
      "My experience have been good"
      0.5 4.0/5 "Great!"
      Based on the interest rate which they are providing and the service given to me thats the reason i have selected HDFC for my personal loan. The loan disbursal got little bit delayed. They have given me a interest rate of 16% and the processing fee is fine. I have chosen tenure period of 1 year.
      Was this review helpful? 0
      , new delhi
      Reviewed on Jan 22, 2019
    • Bank Bazaar Personal Loan
      "Good website"
      0.5 3.5/5 "Pretty good"
      In Bankbazaar i can able to get all the products. For insurance renewal i will visit the website and I'm using this website for last 2 years. Through Google search i have come to know about the website. Support team is really good and i have checked my credit score also.
      Was this review helpful? 0
      , bangalore
      Reviewed on Jan 22, 2019
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