Every business owner dreams of expanding and amplifying the business to a new stature of success. Whichever the type of industry or the scale of business, at one point or another there will arise a need of financing, either to grab an excellent business opportunity or to fulfill a short-term goal. During such situations you will need appropriate financing options based on the target and the nature of your business.
No worries! With a wide range of business financing solutions available today, getting a business loan is a cakewalk. You can simply approach a bank or a financial institution and get a business loan on the basis of your requirements. These institutions are well equipped to help the needy to get the best suited loans for their business. They can choose from a wide array of options along with the choice of type, tenure, collateral and amount of finance.
Business loans can be both secured or unsecured. Secured loans are those which are backed up by some collateral, like property. Whereas, unsecured loans are not taken against a collateral. Secured loans therefore have a lower rate of interest as compared to unsecured loans. Keeping aside business loans, financial institutions also provide other kinds of financing instruments such as overdrafts.
Eligibility for availing a Business Loan
Anyone having an established and a legitimate business with a good payoff, can apply for a business loan. Based on certain validation criteria, the bank or other lending institution decides on whom and how much to give. The general validation criteria includes:
- The type of business
- Cash flow of the business
- Profit earned over years
The amount of loan to be granted is measured on the basis of the profit earned over the years and the entrepreneur’s ability to pay the monthly installments.
Documents required while applying
- Proof of identity
- Proof of address
- 6 month bank statement
- Resolution of the board
- 2 year income statement
- Profit and loss accounts audited by a CA
- Proof of the office address
Categories of Business Loan
As the name suggests, these business loans are based on the tenure of the loan. These include short term, whose maximum tenure is 3 years and long term loans, whose maximum tenure is 10-15 years. The rate of interest for both vary slightly. Term loans can either be secured or unsecured.
This is a process in which the business owner gets cash for credit sales or large purchases. He/she is required to produce the trade invoice and other bills that can authenticate the purchase.
Overdraft is a facility that allows the account holder to spend or withdraw more than the available balance in their accounts. This facility helps the businesses to overcome their short term cash flow problems. Overdraft has to be re-payed within a fixed time period, usually a month.
Letter of Credit
These are usually used for international trades of sententious value and also for the process of land development.
Special schemes for Business-women
A number of banks are now offering many interesting schemes for new-age business women. A number of schemes are available collateral free and at lower rates of interest. Banks also have women cells that help women in various aspects of business; from counseling to training. But in case a woman’s ownership is less than 50% in a business, then these schemes are not valid.
Finding and Comparing Lenders
It is important to research well and find the best lender for your financial requirements. There are a number of options available such as commercial banks, non-bank lenders, alternative lender such as The Lending Club and so on.
Getting a business loan is an important decision for any firm and hence, it should be taken wisely. A good amount of research should be done before hand and the best option should be chosen.
Recommended Read :
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- What is Overdraft Facility How to Use it Wisely?
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- What is a Business Loan Types of Business Loans?
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