Brief About Business Loan

A business loan is a kind of financing you can avail to meet the urgent needs of your growing business. If you need funding to expand your existing business, buy machinery, or boost production, look no further than a Loan Avenue. Avail financing at attractive interest rates, borrow capital without pledging any of your assets, and get access to credit that can be repaid over a specific period of time

Function

A business loan is borrowed capital that companies apply toward expenses that they are unable to pay for themselves. Some business owners use business loans to pay for salaries and wages until their new company gets off the ground, while other companies put borrowed funds toward office supplies, inventory or business projects. Lenders want to know how the business intends to use the borrowed monies, so business owners must make sure to have a clear outline for how the money will be spent. According to an October 2010 article by David Bangs in Entrepreneur.com, it is important to impress the lenders by being professional, or they may decline the loan application.

Types

Businesses have a variety of loan options to choose from. Traditional bank loans are the most popular source of funding, however securing a loan from a bank is no easy task. According to a March 2010 article in Entrepreneur.com by Karin Price Mueller, banks are tightening their lending policies due to the economic downfall, making it more challenging for businesses to receive financial assistance from commercial loans. Aside from commercial loan options, businesses can apply for home equity lines of credit if one or more of the company owners are homeowners.

Features
Loans are not given out for free. Lenders charge interest on loans as the price paid for borrowing the money. It is important to know whether the interest is fixed or variable. A fixed interest rate means that the interest rate remains the same for the duration of the loan and its payback period. A variable interest rate indicates that the interest rate can fluctuate based on a variety of determinants. Other features of a loan to pay attention to are the payback period (months or years) and what the lender will use as collateral if the business is unable to pay the loan back timely.

Significance

Business loans allow companies to have a chance at success. As such, loans are in high demand, but not every company that applies for a loan will receive one. When applying for a business loan, lenders evaluate the company’s history, the amount of debt the company has and whether the business seems risky. Risky businesses, such as startup companies, are often not the winning recipients of traditional loans.

Considerations

Businesses that take out loans with high interest rates should make plans to pay the loan back as quickly as possible, so the interest owed does not accrue into an exorbitant amount. High-interest loans are best used for short-term financing needs.

2. What Are the Documents Required to Get a Business Loan ?

It is possible to manage the cash flow, upgrade business equipment and grow the business by the option of business loans. Each bank has specific requirements, criteria and eligibility factors. Here is the list of few banks document requirements and other details mentioned.

• To avail a business loan, an applicant needs to provide the following documents as per the lender’s requirements:
  • PAN Card – For Company/Firm/Individual
  • A copy of any of the following documents as identity proof:
    • Passport
    • Aadhaar Card
    • Voter’s ID Card
    • PAN Card
    • Driving License
• A copy of any of the following documents as address proof:
  • Aadhaar Card
  • Passport
  • Voter’s ID Card
  • Driving License
  • Bank statement of the previous 6 months
  • Latest ITR along with computation of income, Balance Sheet and Profit & Loss account for the previous 2 years, after being CA Certified/Audited
  • Proof of continuation (ITR/Trade license/Establishment/Sales Tax Certificate)
  • Other Mandatory Documents [Sole Prop. Declaration Or Certified Copy of Partnership Deed, Certified true copy of Memorandum & Articles of Association (certified by Director) & Board resolution (Original)

3. Why And When Should You Apply For Business Loan?

For a small business to get off the ground, or to keep one operating, it must have financing which is often in the form of a business loan. One form of is debt financing. Small businesses can apply to banks or other financial institutions, like credit unions, for commercial loans. Usually, banks do not make loans to start-ups, but they do make loans to ongoing businesses. These are the major steps you should follow through the loan application process.Every business here is distinct in its own way. However, one critical factor that dominates every business here, irrespective of its type and sector – is the requirement for finances. 

No matter what segment the business belongs to, at some point every business will come across the time when it will need to secure funding. And when it comes to procuring business funding then certainly business loans can’t be denied for. Business loans are the most effective tools to provide businesses a quick infusion of capital. 

But taking a business loan isn’t that easy. Finding reasons, for what exactly a loan might be needed for and right time, when, you can’t perhaps do it without a loan- has to be ascertained before you proceed to take out a loan. Well, how to decide? To know more let’s dive through this article

Finding out the “right time” to apply for a business requires a thorough understanding. This is because too early or too late could directly lead to hinder your business growth. 

Then, how to find if the timing is optimally appropriate or not? To help time your movement correctly, here are some of the most appropriate situations that might require you to consider applying for a business loan:

Starting a new business: Not every business aspirant will have enough funds to start or establish his own business. And this is where business loans can help. 

Starting a new venture requires a substantial influx of funding. Everything be it office space, machinery, tools, equipment or hiring staff will require capital to be shored up in advance. Therefore, to kick start your business availing finances through business loans serve to be a crucial source for revenue generation.

Expanding or diversifying business: If your business is booming and you seek to consider its expansion then a business loan can be a great source. Whether opening branches in new locations, adding a new product line, marketing products to a wider audience, hiring new staff or rewarding the existing ones expanding business involves having a lot of cash in hand. In these cases, business loans prove to be very handy. The quick financing coupled with a seamless disbursement process can help your business grow and expand rapidly. 

Purchasing Equipment: Purchasing equipment requires hefty investment – it’s a no brainer!! If your business requires new equipment or desires to invest in more efficient tools then nothing could serve your purpose well than the business loans. Availing equipment financing through business loans can help your business enhance its productivity and profitability. Moreover, if you opt for equipment financing then the equipment itself can be used to secure the funding. 

Purchasing inventory: If your business is seasonal and requires stocking up products in bulk during a particular period then you may need access to extra capital. To meet this surge in demand and replenish inventory with quality products applying for a loan should be considered. The quick disbursement of funds through it can help you ramp up your business sooner and faster. 

4. Know More About Tax Benefits On Business Loans In India?

• Interest Repaid on a Business Loan Is Tax-Deductible 

The interest component of your business loan is tax-deductible. You can deduct this amount from your gross income while calculating the income tax of your business. Make sure to maintain the correct records of your business loan, so that you can submit proof if later requested by the income tax department. 

• Principal on Business Loan is NOT Tax-Deductible 

The principal amount you borrow in a business loan is not tax-deductible. You cannot deduct this sum from your gross business income while calculating the year’s taxes. 

However, the principal amount is not money earned by your business. What you are doing is essentially borrowing money from a third-party and repaying it. Hence, it is not considered as income for your business. 

This means you don’t have to include it in your gross income. You don’t have to pay income tax for this amount, nor can you deduct it from your gross income.

Now, that you are clear about the tax implications of business loans, you have to understand,

• Tax Deductible Expenses for Businesses

Tax-deductible expenses work in favour of your business. These are expenses that can be deducted from your gross revenue or profits, thereby helping you lower your taxable income. Simply put, these expenses are subtracted from your overall business revenues for the year, before you compute your tax liabilities. 

• Business Loans Taxation Rules: In a Nutshell 

The loan interest amount is tax exempted, if you can show proof that it was used for a business-related expense like purchasing equipment, inventory, etc. The principal amount does not offer any tax benefits as it is not tax-deductible. However, it doesn’t increase the overall taxes you pay, as you don’t have to include it in your gross revenue. 

5. What Are The Benefits Of Business Loans?

• Every business owner needs a certain amount of money to start their own business. However, the entrepreneur on the threshold of starting a new venture has to work out where and how he will get access to sufficient funds.
• Banks are one of the first organizations to be approached for funds in the form of many loans
  • Business Loan,
  • Home Loan,
  • Personal Loan
• It is difficult to get a bank loan to finance a small business venture.
• The phenomenal potential of small businesses and undergoing a gradual change of advancement. Banks are one of the first organizations to be approached for funds in the form of a loan.
• However, the final decision about where to secure funds depends on the balance between the pros and cons of the source.

Benefits of Business Loans

Accessible and Convenient

• As per convenience promoters offers different repayment options. They may work out a repayment plan as per the business cash flows to avoid facing financial difficulties while servicing the loan.
• Monthly installment can be lower or increased by owners as per the profitability or choose bullet payments to periodically repay the amount.

Flexibility

• According to the requirement of the fund different types, the owner avails the loan.
• Many companies can choose term loans to meet the fund requirements in the short to long-term.
• They may choose for working capital loans to meet the operational expenses of the business.
• An overdraft facility whereby promoters may overdraw the current accounts as per the agreed terms and conditions.
• The flexibility makes it easier for promoters to avail a loan for the business facility.

No Collateral Required–

• No income or collateral documents need to submit to avail the loan.
• A property or land must be owned by the borrower for a 100% loan disbursement.
• For a small business start-up, these loans help to meet their business requirements and sustain the progress.

Short-term option

• Businesses which look for their fund requirements can opt short-term loan.
• This meets their requirements to fill a short-term financial gap.
• In addition, there are flexible loan options depending on the size of the business like
  • 100% disbursement,
  • 70% payout (if shown company tax return) etc.
  • This makes easier for businessmen to expand their business and to sustain the cash flow.

Competitive Interest Rates

• Not only banks and certain NBFCs but also other lending companies can also offer business loans. However, at competitive interest rates.
• Capital Float provides a small and medium businesses in India at very competitive interest rates, nominal processing fees, with absolutely no hidden charges.
• These features make financial institution some of the most preferred lenders in the present small business loan market.
• Anyone in business can reap the rewards from financial education and professional advice.

• There has been a substantial growth in e-commerce since 2014. It has grown multifold within very less time.
• The growth has been off the charts for a while. The number of e-commerce firms has also risen with many startups coming into play.
• This implies enough options to confuse a buyer and enough competition for a seller.
• The connection between buyers and sellers has become a competition in itself.
• The sellers also have to compete within. The internet has revolutionized the way the FMCG market works.
• However, it has changed the way how companies conduct their businesses and how the buyers buy goods.

Benefits of an e-commerce loan in business.

• An effective website is the most important thing for an e-commerce business.
• It automatically increases the number of customers that visit your website.
• It should be updated regularly as well. This requires professionals and thus more money.

Expanding your product range

• You must try to keep growing. To grow, you need to expand your range of product that the business sells.
• Thus you may need the funds for manufacturing costs and stock purchase.

Create the infrastructure

• Companies need to provide an efficient infrastructure to offer seamless services to its customers.
• It includes
  • Delivery channels
  • Payment gateways
  • Storage facilities
  • Manufacturers etc. Also, you need to provide an efficient and secure system to prevent leakage of sensitive user information. This can be solved

Stock or working capital

• Sometimes, it takes a major portion of your cash to cover stock and working capital.
• A loan can easily help you cover those costs and use cash to grow the companies.

Financing restructuring

• A business loan can consolidate your existing loans.
• This helps you save time and effort. You need not keep a track of too many debts.

Hire competent personnel

• After getting a loan, you can have enough money to hire a competent and professional staff.
• However, this can help you grow sales and turnover to grow your company.

Promote their ventures

• The company has to promote their ventures to be visible on the internet. Having more money means more promotions.
• This will help in maximizing their online presence, and provide benefit to the company

6. Business Loan- How Young Entrepreneurs Can Benefit From It?

All thanks to Start-up India & Digital India and the economic growth, start-ups are on rise in India.  Another survey conducted by Randstad in 2017 found that 83% of Indians showed interest in making their own business. Among that 72% of them belong to the age group 25 to 34 years. From these statistics, it is understood many young Indians are eager to set up a business on their own. This is a great scenario and every Indian should feel proud that we are growing. 

But the catch is about the funding, most of the dreaming young entrepreneurs do not know how to start their business. Mainly money is the concern that forefronts preventing them from setting up a business. However, this cannot be a reason anymore as the government has come forward with several small business loans. Also, many private institutions have made this even easier to light up the vision of ambitious young entrepreneurs.

1. Expansion and Growth

You and your business are ready for the next leap and are looking to expand the current line but lack the investment needed for it. You have the ideas, the location, and physical requirement of production in place but no cash in hand. This means your business is booming and taking on the debt will actually be beneficial for your business. This loan would help you to grow in terms of expansion, physical location to a bigger space, hire more employees etc.  Before you take on the loan, you need to do some estimates and revenue forecasting so that you cover the loan cost and still make profits.

• To Purchase Equipment

You need certain machines or equipment to perform better.  Equipment can be a real hindrance when you are trying to expand. Due to heavy machinery cost and charges many businesses refrain from expanding and production. Lack of knowledge has kept entrepreneurs in the dark for the option of loans for equipment finance. Plus, if you take out equipment financing, the equipment itself can serve as a collateral for a loan – similar to a car loan. You can read further on equipment financing and its know hows here.

• You want to invest more in inventory

Inventory is one of the biggest expenses while running any business. Also, inventory can be a very tricky area of business as many lack the expertise of how much to invest in inventory. Sometimes a large sum of liquidity is blocked in inventory keeping idle production while sometimes hardly any inventory is produced failing to meet the demand. In order to measure the right amount of inventory, projections are required based on last year’s sales along with last year’s quarterly sales and year on year growth taken into account. To help with the financing of inventory and no ensure no cash is blocked taking on a loan for inventory purposes can be quite fruitful.

• Working Capital Requirements

Working capital is the money required to run the everyday day to day operations. SME’s and MSME’s sometimes require exterior help with the management of working capital. Lenders have loans under the working capital umbrella to boost the operations of a business. As and when the business grows and can function without exterior help, the business can prepay the entire loan.

• Hire Expertise

Many times a business is running well and fine but there is a lack of professional touch or expert opinion. The kind of advice and guidance that can b a turning point for your business. When you start your business, you are wearing a lot of hats but eventually, there comes a time when you have to let the accountants deal with the accounts and marketing team market your product while you concentrate on innovation and production. At this point in your business when your small team is managing everything, it is time to invest in talent and expertise. A loan would help you tackle this issue.

Business loan interest rate is an important aspect that every borrower considers before opting for a loan. In fact, for most of the borrowers picking the right loan comes down to a single factor- interest rate. Interest rates largely hit your loan terms and future business needs. Thus, determining the rates and getting a clear picture about it is probably a crucial task.  Usually, the interest rates vary from lender to lender. However, there are certain factors that affect the rates of interest imposed on you. Business Loan Interest Rate in India is calculated based on these predetermined factors. Thus, if you don’t wish to be caught by unexpected surprises pay heed to these business loan interest rate deciding factors

Why business loans?

Business loans are a preferred form of raising funds for businesses among other avenues such as promoter’s funds, venture capitalists, angel investors, public funding, etc. This preference is mainly due to the following reasons:

• Options for a shorter or customized tenure of loans
• Unlike equity, there is no need to give up or sell stakes
• Interests paid on business loans are tax-deductible
• Advance calculation and knowledge of interest to be paid in EMIs help in financial planning
• Business loans work better for micro and small scale businesses

However, one of the major and sometimes the sole deciding factor for applying for business loans is the interest rate. At present, the competition among various banks, NBFCs, and government schemes have kept the business loans interest rate at attractive percentages which usually ranges from 15% to 24%. And better knowledge and proper research can help you to opt for a business loan that fulfills your funding requirements with in your budget

Credit Score

The credit score is one of the primary tools that lenders assess to determine your eligibility for a loan and hence your interest rates. Generally, for fetching the best business loan interest rates in India a credit score above 700 is considered to be a favorable one. Additionally, at the same time lenders also check for the credit history of your business. This aids them in gauging the repaying capability of the borrower. Therefore, having a sound credit history helps in making the loan process smoother. The higher would be your credit score lesser would be the interest rates charged.

Type Of Business

There are two types of business loans interest rates in India. They are:

• Reducing Rate: Here, the interest rate is adjusted per month based on the outstanding loan amount. Therefore, it is known as Diminishing or reducing rate of interest.
• Flat Rate: Here, the interest rate is calculated on the entire loan amount, and the tenure of the business loan is also taken into account. The EMI does not diminish with the principal amount being paid every month, and thus, the business loans interest rate is flat.

The business loan type that suits you will differ according to your amount requirement, tenure involved, and of course, the interest rates payable.

Age Of Business

A well-established business is likely to secure lesser interest rates as compared to newer ones. This is because several lenders in India prefer providing credit to small businesses that have gained the time tested experience in the field. Therefore, if you have been involved in the same business for years then it is a positive indication for the lending institution. You will be provided with better loans terms and easier repayment options. Contrary to this, a new stage startup or business with minimum experience would be charged higher interest rates. 

Business Plan

Not all lending institutions ask for a business plan but if you have a newly established venture then you might be required to present one. Your business plan should be concise and impactful. It should clearly present all the information about where the money is intended to be used and how. While, if your plan is not effective and does not show any growth prospects then the lending institution might approve your loan but may impose a higher interest rate.

The Financial Health Of The Business 

The good financial health of a business is significantly important in determining the business loan interest rate. A business with sound financials would be a more viable candidate for a loan as it can be trusted of repayment without any hassle. The lender would assess the fundamentals of your business through cash flow statement, balance sheet, and profit & loss account. If your business is profitable enough and involves lesser risk then you might be offered the loan at a lower interest rate.

Collaterals

collateral thus there comes the variation in interest rates. However, nowadays a number of lending institutions offer collateral-free business loans at a low-interest rate. Though these unsecured loans do not require collateral but having sound business assets can help you avail higher loan amounts at subsidized interest rates.  

All of these factors collectively form the basis on which your business loan interest rate would be evaluated. Getting familiar with these factors will help you plan accordingly for your specific business needs. Moreover, it will help you opt for the best funding solution available. 

Fortunately, if all of these factors fall in your favor, you will assuredly be offered the loan at a low-interest rate by most of the lenders.

 Business Loan Interest Rates

We at understand the needs of our customers. To accord them with the best lending experience our analytics-based smart systems work to simplify the loan process at every step. Our technology backed Business loan interest rate calculator allows us to provide customized interest rate to our customers, thus ensuring that every applicant is provided with fair interest rates without any biasing. Our annual interest rate charges starting from 12% stand out to be competitive in India. Moreover, our flexible repayment options make us the one-stop solution for unsecured small business loans.