HomeEntrepreneurshipBusinessEverything You Need To Know About Getting a Business Loan

Everything You Need To Know About Getting a Business Loan

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India is an emerging economy, and the government has taken multiple measures to achieve the status of a developed country in the near future. The rapid adoption of the latest technologies and the fast emergence of MSMEs are the foundations to shape the country’s growth.

Intending to promote small and medium businesses, several entrepreneurs advance to grow their firms and expand in the Indian and global markets. 

Irrespective of the business structure and offerings, they require external funding at one point or another to run their operations smoothly. They might require funds to fulfil their business requirements, purchase assets, raw materials, or machines, or cater to their customers’ needs.

Many business owners opt to take a Business Loan against property, but these secured loans might lead to the loss of their assets if they fail to repay the loan.

That is why unsecured Business Loans are the most lucrative funding options for SMEs with limited assets.

Here is everything an aspiring borrower must know before applying for Business Loans. 

Also Read: Applying for a Car Loan? Consider These 8 Repayment Options!

Different Types of Business Loans SME Owners Can Avail

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Financial institutions offer different types of Business Loans one may avail.

  • Unsecured Loans: Unsecured Business Loans do not require collateral, guarantor, or security to take the loans. Aspiring borrowers can visit the lending institution’s website and apply for a loan online for quick in-person verification and instant disbursal.
  • Working Capital Loan: Working capital loans are short and medium-term loans that help SME owners grow their businesses. The loan amount and interest rates depend on the applicant’s eligibility, credit history, and financial obligations.
  • Term Loan: It is a long-term Business Loan that SME owners take to finance their business expansion or meet any other financial requirements. These have fixed loan terms and repayment schedules at lower interest rates.
  • Loans Against Property: These are secured loans that business owners can take against a valuable asset. The loan amount for a Business Loan against property depends on the property’s value and the applicant’s credibility. However, if the borrower fails to repay the loan on time, the lending institution can use the property to recover their loan dues. 

Also Read: A Comprehensive Guide to Money Management Guide

Secured or an Unsecured Business Loan – Which is Better?

Business

Secured Business Loans have lower interest rates with affordable repayment plans. These loans have flexible repayment tenures, allowing borrowers to choose a lower EMI amount to pay each month. These loans can offer higher amounts depending on the collateral property’s value. Business owners with poor credit scores can take secured loans by providing collateral as an assurance to the lending institution. If they default on the repayment, the lending institution can claim the asset to recover their money. 

In the case of an unsecured Business Loan, the lending institution does not require collateral. As a result, the interest rates are slightly higher than secured ones. Notably, unsecured loans are comparatively easier to avail than secured ones due to minimal documentation requirements for verification.

So, while selecting between an unsecured loan and a Business Loan against property, pay attention to the availability of assets to pledge as collateral and the risk tolerance level. Borrowers should only take a secured loan when they are sure of timely repayment.

Also Read: 5 Benefits of Using an Installment Loan to Fund a New Business

If in doubt, they can prefer an unsecured loan to keep their assets secured. Moreover, unsecured loans are better funding options for SMEs and MSMEs that usually do not have assets to stake but need money to fund their business growth.

Eligibility Criteria to Apply for a Business Loan

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Here are a few eligibility conditions a small business owner must fulfil to obtain a Business Loan.

  • The minimum business turnover should be around ₹ 1 Crore to qualify for a Business Loan.
  • The applicant’s age should be more than 21 years at the time of loan application and less than 65 years at maturity.
  • How long the business has been operating successfully is another criterion to qualify for an SME loan. For most NBFCs, the business should have been active for at least three years. However, some lending institutions might require more business vintage to sanction Business Loans.
  • Another crucial criterion is the applicant’s credit score. Most NBFCs evaluate this 3-digit number before granting a loan. A CIBIL score of 700 or above or/and a CMR score of 6 attracts higher loan amounts with lower interest rates, while a poor score may lead to unfavourable loan terms and even loan rejection. 

Getting Ready for a Business Loan Application

Business Loan

Applying for a loan needs consideration. Here are a few things one must do before applying for an SME loan.

Evaluate a Loan Requirement: The loan seekers must evaluate their financial requirements based on their loan purpose, funding needs, and associated expenses. The applicants should meet the NBFC’s eligibility criteria and provide supporting documents to qualify.

Build a Decent Credit Score: When a financial institution receives a loan application, they conduct a hard enquiry on the applicant’s credit report and check their credit score. Some crucial factors that determine an individual’s credit score include the amount owed, payment history, new credit application, credit types in use, etc.

Research and Apply: Check the preferred institution’s eligibility criteria, documentation requirements, application procedure, loan amount, interest rates, repayment terms, etc. If you meet the criteria, fill out the application form, wait for verification and get approval to get the required funds. 

For a smoother borrowing process, choose to apply online with new-age lending institutions like Clix Capital – well-known to provide unsecured Business Loans of up to Rs 50 lakh at competitive interest rates with minimal documentation.

Before applying for a Business Loan against property or without collateral, the borrower must check their eligibility. If the criteria are met, the NBFCs sanction the loan without hassle, empowering entrepreneurs to expand their businesses or strengthen their operations.

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