Read useful information on Business Loan
Business Loan
Business loans are available to self employed professionals, firms and corporations, to meet their operating expenses, finance capital expenditure (or acquisition of fixed assets) towards starting or expanding a business. Even industrial units are given business loans, to swap existing high-cost debt from other bank / financial institution. Apart from providing funding, bank can also issue letters of credit or give a guarantee, on behalf of the customer, to the suppliers and even government departments, for the procurement of goods and services on credit.
The maximum amount of business loan that can be sanctioned varies from bank to bank. However, the minimum loan amount is Rs. 25000 and maximum loan tenure is 5 years. Generally, no security is required for business credit up to a certain limit. For business loans above the limit, banks usually require a collateral security or a percentage of business loans as margin, in the form of fixed deposit with the bank. Business loans are similar to an overdraft and are available like a limit on current account. In this case, the interest is charged only on the actual amount utilized, rather the entire amount of loan.
Types of Business Loans
Professional Loans
Professional loans, as their very name suggests, are provided to self employed professionals like Doctor, Chartered Accountant, Interior Decorator, Architect, Company Secretary, etc. Unsecured in nature, this type of loan is not given to manufacturing, trading or processing units. The amount of loan varies between Rs. 25000 to Rs. 25 lakh, considering the age of the applicant, his financial standing, his repayment capacity, tenure of the loan (maximum 5 years), etc.
In case of professional loans, the rate of interest depends upon the prime lending rate, is calculated on diminishing balance and can be on the fixed as well as fluctuating basis. In many cases, it depends upon the customer's profile and his financial capacity. The payment is made through EMIs and in only a few cases, tangible collateral security is required. Most of the finance companies also charge a process fee, usually 1% of the loan amount.
Documents Required
- Proof of Identity (Passport Copy/ Voters ID Card/ Driving License)
- Address Proof (Ration Card/ Telephone Bill/ /Electricity Bill/ Passport)
- Bank Statements (latest 6 months bank statement /passbook)
- Latest ITR, along with computation of income
- Balance Sheet & P&L Account for the last 2 yrs, certified by a CA
- Qualification Proof of the Highest Professional Degree
- Proof of Continuation (Trade license /Establishment /Sales Tax Certificate)
- Other Mandatory Documents (Sole Proprietorship - Declaration, Partnership - Copy of Partnership Deed, Apart from Copy of MOA, AOA & Board Resolution)
- Two passport size photographs
Trade Loans
Trade loans are provided to traders/ businessmen, so as to help them either open a new business or operate/expand an existing one. The amount of loan varies between Rs. 25000 to Rs. 100 lakh, considering the age of the customer, his financial standing, his repayment capacity, tenure of the loan, etc. The maximum duration for which the loan is given is 5 years and it has to be repaid through Equated Monthly Installments or EMI.
The rate of interest depends upon the prime lending rate and can be offered on the fixed as well as fluctuating basis. There are many banks that require customers to furnish collateral security for the loan, in the form of mortgage of land (not agricultural land) and building. Apart from that, National Savings Certificates, Government Bonds, Bank's Term Deposits, Assignment of Life Insurance Policies, Approved Shares & Bonds (in the name of borrower/proprietor/partner/director) are also acceptable.
Type of Concerns Given Business Loan
- Sole Proprietorships
- Partnerships
- Private Limited Companies
Documents Required
Sole Proprietorship / Partnership Firm
- Proof of Identity (Copy of Sales Tax / VAT /Service Tax / Excise Registration Receipt OR Registration under Shops and Establishment Act OR PAN ID / IT Return of the Concern OR Water / Electricity / Municipal Tax Bill in the Name of the Concern OR MAPIN Card in the Name of the Concern)
- Proof of Individual Identity (Copy of Passport/Voter's Identity Card/Photo PAN Card/Driving License/MAPIN Card)
- Proof of Residence Address (Copy of Passport/Voter's Identity Card/Driving License/Ration Card/Life Insurance Policy/Electricity Bill/Telephone Bill)
- PAN Number/Form 60 of the Concern
- Financial Documents (Copy of P & L Account and Balance Sheet for last two years, audited by a CA and Copies of IT returns for the last two years)
- Bank Statements for last 6 months
- Partnership Deed (Required only in case of Partnership Firm)
- Proof of Place of Business
- Two passport size photographs
Private Limited Company
- Proof of Identity (Copy of Sales Tax / VAT /Service Tax / Excise Registration OR Registration under Shops and Establishment Act OR PAN ID / IT Return of the Concern OR Water / Electricity / Municipal Tax Bill in the Name of the Concern OR MAPIN Card in the Name of the Concern)
- Memorandum and Articles of Association (Copy of Certificate of Incorporation)
- Board Resolution (Copy of Annual Return establishing the shareholding pattern)
- Proof of Individual Identity for the authorized signatories and 2 directors, including the managing director (Copy of Passport/Voter's Identity Card/Photo PAN Card/Driving License/MAPIN Card)
- List of Directors
- Copy of Form 32 filed with ROC
- PAN Card / Form 60 of the Concern
- Financial Documents (Copy of P & L and Balance Sheet for last two years, audited by a CA, and Copies of IT returns for the last two years)
- Bank Statements for last 6 months
- Proof of Place of Business
- Two passport size photographs
More Information
Short-term Loans
Used for short-term working capital requirements and paid within 1 year.
Intermediate Loans
Used for new business, to build inventory, buy equipment or increase working capital, and paid between 1 and 3 years.
Long-term Loans
Used for well established business, to increase fixed assets, for related business acquisitions or expansion, and paid between 3 and 5 years. At times, used for start-up business, to purchase land or buildings, fund construction efforts or finance long-term working capital.
Note
Two types of charges might be levied in case of business loan - processing fee and Pre-payment fee. Processing fee is payable at the time of processing of loan application. Pre-payment fee is payable in case you decide to pre-close your loan account, by paying the entire/part of the loan before it is due.
