Banks usually offer business loans that are either secured loans or unsecured loans. In a secured business loan the businessman has to keep something as collateral against the loan amount taken. The collateral can be anything like from raw material to finished products, land or even the building of the business. Secured business loans are usually provided for a long term and to established businesses. They also have lower interest rates with flexible repayment options. These loans are usually given for 3 to 5 years.
Unsecured loans are usually given at high interest rates and for a short term. These also not require any collateral. Business people seek unsecured loans for meeting their short term needs.
Banks can provide secured or unsecured business loans to business people. However, to secure any kind of loan you need to meet a certain kind of criteria.
Banks offer business loans to all types of businesses like proprietorships, partnerships and private limited companies. The criteria can depend on the bank offering the loan. Normally banks offer business loan of upto Rs. 15 to businesses with revenue of Rs. 150,000 per annum. You can get loan of over Rs. 15 lakh if your business has revenue of Rs. 3 lakh per annum. In fact a business house can get any amount of business loan depending on the revenue and valuation of the company. Major companies can even get loans running into millions of dollars.
While going for a business loan you need to have income proof to assure the bank that you can repay the loan amount. The documents required while applying for a business loans depends on the type of the firm like sole proprietorship, partnership firms or private limited companies.
The following documents you need to apply for a business loan:
Proof of identity of firm.
In case of private limited company, copies of memorandum and articles of association, certificate of incorporation, board resolution, copy of annual return establishing the shareholding pattern are needed.
Proof of individual identity of the proprietor.
Proof of residence address of the proprietor.
In case of private limited company proof of identity and residence of all directors are required.
Certified balance sheet of the business for last two years.
Copies of IT returns for the last two years.
Bank statements of last 6 months for business loan up to Rs. 15 lakh and last 1year for business loan of above Rs. 15 lakh.
Some banks may ask for additionally documents. Kindly check with the bank before applying for the business loan.
Why business loan is needed?
A business loan is offered to business people to start a business, launch a new venture or just for growing the company. Businesses of all size go for business loans to meet their need of funds.
Can I seek business loan even if I have not started my business?
Yes. Even startups can seek loans for starting a new business from banks. Banks do offer loans even to new company seeking funds to start operations.
Can credit limit be increased?
Yes. Once you have been approved for a business loan you can you can increase the credit limit by giving a request letter and new documents to support the enhanced amount facility. However, this is subject to the eligibility criteria.
What is a fixed rate?
When a bank charges interest rates at a fixed rate then it is called a fixed rate business loan. In this type of loan the interest on the loan about remain fixed and constant. You should opt of this only when you are sure that the interest rates have been at the bottom and can only go up.
What is a floating rate?
When the interest rate charged on a business loan keeps changing with respect to the prevailing rates in the market over the tenure of the loan, then it is called a floating rate business loan. This type of interest rates change periodically, and accordingly the tenure increases or decreases and also the EMI amount increases or decreases.