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Information enables, knowledge empowers, wisdom elevates. In this age of smart phones and digital enablement for all, new forms of credit are constantly coming to our door steps; being aware can transform the way we think about funding our businesses. We are passionate about issues that surround small businesses and this space is devoted towards spreading awareness about various tools that can benefit entrepreneurs. Keep reading..

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May, 2016

Business Loan Basics for Small Businesses!

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1. What is a business loan?

A business loan is a loan taken from a lender for the purpose of conducting or expanding one’s business related activities like purchasing inventory,stock, managing receivables, machinery purchase, infrastructure set up, hiring staff, machinery modernisation etc..


2. What are the terms of a business loan?

Generally 3 to 5 years tenure. Interest rates vary a lot depending a  upon lot of factors like your credit history, your current business characteristics, type of lender and last but not the least how urgently you need funds! Range can be between 11.5-22%. Generally interest rates for secured loans is lesser as compared to unsecured loans. You can calculate EMIs and loan amount eligibility here..


3. What are the prerequisites for availing a business loan?

Typically, following pre-requisites must be met to avail a business loan:
a. Business history of at least an year with address and identity proofs, 3 months bank statements.

b. Promoter should have a good credit history as adjudged by parameters like credit score.


4. Do you require collateral to get a business loan?

Not all business loans require a collateral. Generally loans of low ticket size (~3-15 lacs) and taken for business purposes and backed by good documentation like proper income proofs can be sanctioned by lenders without needing a collateral. However, when one or more of the above criteria are not met then lenders consider it safer to give loan against a collateral.


5. How can I get an equipment/machinery financing loan?

You can apply for a machinery loan here. Generally equipment loans will have tenures ranging from 3 to 5 years. You can avail an equipment loan for used machinery as well. Interest rates can vary typically in the range of 13-18%. Also you can fund upto 75% of the cost of the equipment by a loan, 25% of the cost (also known as margin money) needs to be arranged through your own funds.

Typically, you would not require any other collateral to fund your machinery purchase. If you are opting for a technological upgrade of your plant you can also check to apply for CLCSS (Credit linked capital subsidy) for your enterprise.


6. What are the terms of a secured loan?

Secured loans are the ones which are backed by collateral. Like a property (house, office, commercial space), or life insurance policy/mutual funds/fixed deposit etc.

Typically terms in a secured loan like interest rates, tenure are better as compared to an unsecured loan. Interest rates are from 11 % to 16% and tenure as long as 10 to 15 years. You can calculate the loan eligibility for a loan against property here..

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