How Can You Apply for a Business Loan?
Learn how to apply for a business loan with this step-by-step guide. Find out the requirements, documents needed, and best practices to get approved quickly.
Finances will be a big concern for anyone starting or building a business in India. This is where a business loan would come in. If you want to apply for a business loan in India, you should understand the process, the different schemes available, and eligibility. Below is an uncomplicated guideline that will help you better understand how to go about it to heighten the possibilities of success.
Types of business loans in India
To be aware of various types of loans, it is necessary before you opt for corporate credit:
Let’s have a closer look at these categories
1. Term Loans
These are standard loans comprising fixed tenure, mostly lasting between 1 and 5 years.
2. Working Capital Loans
These loans are designed to meet the daily operational cost of the business.
3. MSME Loan without Collateral
This type of loan is exclusive to micro, small, and medium-scale enterprises that do not need any assets or collateral to secure it.
4. Overdraft Facilities
It’s a credit line where you can withdraw more than what you have in your bank account while maintaining a specified limit.
Eligibility Criteria for a Business Loan
Although eligibility criteria could differ slightly among different banks, there are some common requirements:
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Business Vintage – Usually, banks expect that your business has been in operation for at least 2-3 years.
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Credit Score – Many times, people need at least 650 as their CIBIL credit score because lenders want someone who has paid their debts on time.
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Annual Turnover – For small businesses, most of the banks would require an annual turnover ranging from ₹10 lakh to ₹1 crore.
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Profitable Operations – To some banks, it is mandatory that you show them how profitable your company has been for 2 years.
Documents Required for a Business Loan
All required documents should be at hand when applying for a loan. They are:
1. Identity Proof
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Aadhar Card
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PAN Card
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Passport
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Voter ID or Driving License (as alternatives)
2. Address Proof
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Utility Bills (electricity or water bill)
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Property Ownership Documents or Lease Agreement
3. Business Proof
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Business Registration Documents (e.g., GST Registration, Shop Act License, Certificate of Incorporation for companies)
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Partnership Deed (for partnerships)
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Memorandum and Articles of Association (for companies)
4. Financial Documents
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Income Tax Returns (ITR) for the last 2-3 years
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Bank Statements for the past 6-12 months
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Financial Statements:
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Balance Sheet
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Profit and Loss Account
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Cash Flow Statement (if available)
5. Collateral Documents (if the loan is secured)
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Property Ownership Papers
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Valuation Report of Collateral Assets
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No Objection Certificate (NOC) from co-owners, if applicable
6. Proof of Business Continuity
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Trade Licences
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Rent Receipts for business premises
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Previous loan repayment history (if applicable)
7. Additional Documents (if applicable)
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Quotation or Invoice for Equipment Purchase (for equipment loans)
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Project Report or Business Plan (for large loans or startups)
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Credit Rating Report (if available)
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Declaration of Outstanding Liabilities (if any)
The Process to Apply for a Business Loan in India
Below is a step-by-step guide on how you can apply for a business loan in India:
Step - 1 – Determine the Loan Type
Step - 2 – Check Your Eligibility
Step - 3 – Gather Documents
Step - 4 – Choose the Right Lender
Step - 5 – Fill Out the Application Form
Step - 6 – Loan Assessment and Verification
Step - 7 – Loan Approval and Disbursal
Popular Business Loan Schemes in India
Here are some government and bank schemes meant specifically for Indian businesses to obtain loans:
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Mudra Yojana Scheme
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PMEGP (Prime Minister’s Employment Generation Programme)
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Stand-Up India Scheme
Tips for a Successful Loan Application
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Maintain a Good Credit Score – A strong credit score increases your chances of loan approval and may also help secure a lower interest rate.
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Have a Clear Business Plan – Lenders like to see a clear and structured plan that outlines how you will use the loan and repay it.
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Show Consistency – Demonstrating consistent revenue over the last few years can improve your chances of getting a loan.
The Bottom Line
A structured process is involved in applying for a business loan in India. Owing to this, one is supposed to keep in mind the various business loan categories, their requirements for applicants and the necessary papers.
In essence, come up with a viable business plan, keep an impressive credit rating and select a suitable lender to increase your prospects of obtaining those much-needed funds.
If you strictly adhere to these guidelines, going for a business loan for your enterprise in India becomes a cakewalk!
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