Business Loan

Frequently Asked Questions for Business Loans in India

Below-given are business loan FAQs:

• 1) How to improve your chances of getting a business loan approval?

  Follow the below mentioned steps to get your business loan application processed faster:

  • High Credit Score: You should maintain a good credit history and score. It will assist you in gaining trust of the financial institutions about your credit worthiness, and help in getting the loan application approved in a timely manner.
  • Good Repayment Capacity: Apply for a loan amount that is suitable as per your repayment capacity. Banks and NBFCs study your financial profile and business’s annual turnover before approving a loan amount. If the amount required exceeds your repayment capacity, the loan application can be rejected.
  • Submit Correct Documents: Provide all necessary documents such as your residence proof, ID proof, age proof with the company documents. The documents need to be uploaded online with the application form.
• 2) Who are the eligible entities to apply for the loan?

  Those who can apply for a business include: self-employed individuals such as architects, doctors, CAs, or self-employed non professionals such as partnership firms, sole proprietors, public limited companies, and private limited companies involved in the business of manufacturing, trading, and services.

• 3) What is the eligibility norm for applicant’s age?

  Banks and NBFCs offer loans to those between 21 years and 65 years of age.

• 4) How much time it takes to get a loan for business from banks and NBFCs?

  The time taken for loan amount disbursal varies from one financial institution to other. If you submit correct documents, the loan can be processed faster. Usually it takes 3 to 4 days to process the loan.

  • You should maintain a good credit history and score. It will assist you in gaining trust of the financial institutions about your credit worthiness, and help in getting the loan application approved in a timely manner.
  • Apply for a loan amount that is suitable as per your repayment capacity. Banks and NBFCs study your financial profile and business’s annual turnover before approving a loan amount. If the amount required exceeds your repayment capacity, the loan application can be rejected.
  • Provide all necessary documents such as your residence proof, ID proof, age proof with the company documents. The documents need to be uploaded online with the application form.
• 5) What is the tenure requirement?

  The tenure is between 1 year and 5 years, but may vary as per the discretion of the financial institution.

• 6) What is the importance of business growth and vintage?

  For a financial institution to take a lending decision, it is important that your business has enough vintage and a growth figure. It gives the lender an assurance of your company’s stability, authenticity, and profit over years. These factors together decide your repayment capacity. Banks typically need at least 3 years of business stability and profitability. The lender may specify the minimal annual growth rate or turnover in their eligibility criteria.

• 7) What is the importance of financial stability to avail a business loan?

  Lenders check financial stability to understand your repayment ability. For this purpose, the lending institution will check your company’s (and in some cases, your personal account) bank statement of the recent 6 months or a year. The bank/NBFC will consider your average account balance, outbound and inbound cheque bounce information, credit track record, etc to determine your loan eligibility.

• 8) Why to get the financial statement and documents audited by a Chartered Accountant?

  The bank/NBFC will prefer that you submit audited financial reports and statements. This is because such reports are authentic and have lower chances of errors or discrepancies. It will reduce the bank’s work on spending time on verifying these documents. Also, it will increase your ability to get the funds as audited reports are more accurate, which is needed to give a real idea to the lender about your financial information.

• 9) Why do financial institutions charge a pre-closure fee?

  Pre-closure fee is charged if you wish to close the loan before the end of tenure. Financial institutions may impose this fee to cover the loss. The fee can be up to 3% (sometimes more) of the outstanding amount.

• 10) Will the business loan carry fixed interest rate or floating interest rate?

  If you take a loan on a fixed rate, then the interest rate will not change throughout the tenure. But if you take a loan on a floating rate, the interest rate pay change time and again, and so will the EMI amount. Most of the business loans carry fixed interest rates. However, in certain cases, a floating rate may be applicable. Check details of the loan scheme to understand the type of interest rate applicable.

• 11) Which factors affect the business loan interest rate?

  The below 3 factors influence the rate of interest:

  • Greater the business tenure, lower will be the rate of interest
  • Higher the loan amount, lower will be the interest rate
  • Shorter the tenure, lower will be the interest payout
  • Longer the business vintage and stability, lower will be the rates
• 12) Is it possible to reduce the business loan EMI?

  You can lower the loan EMI if you opt for full or partial prepayment. Most financial institutions may allow foreclosure or par pre-payment after the complete payment of the initial 6 to 12 EMIs. So you can choose to repay the loan sooner and save yourself on the interest payout. Partial payments can also help to lower the EMI burden for the rest of tenure.

• 13) Does defaulting on EMI affect co-applicant?

  Co-applicants are equally responsible as the primary applicant, to shoulder the responsibility of the loan. So if the primary borrower fails to repay the loan on time, it will affect the co-applicants. In case of a default, all the applicants are liable. Thus, credit scores of every applicant will be negatively affected.