Small and medium enterprises are one of the most dynamic sectors in the Indian economy. It plays a crucial role in providing employment opportunities to a diverse class of people all around the country. SMEs brought equitable distribution to income and wealth in the regional areas and have been one of the largest providers of auxiliary services for the last five decades.
Despite their growth and contribution to the Indian economy,
SMEs still suffer from a significant deficit in available business finance. SMEs operate with a comparatively lower capital than larger industries. So, it can bring an adverse effect when they need to pay for export goods, higher quality raw material, business expansion, infrastructure overhaul, etc.
Business loans can be the ideal option of financing in such situations. Financial institutions offer a substantial amount of capital to help small and medium industries invest in infrastructure, maintain working capital and inventory, etc. A business loan can provide with the necessary assistance to support an enterprise’s growth.
Applicants only need to fulfil some basic requirements to avail a business loan. It includes easy-to-meet eligibility criteria and minimum documentation. The eligibility criteria for business loans can comprise the following.
- For organisations – Partnerships, Limited Liability Partnerships (LLP), and other types of companies including private limited are eligible for business loans.
- For self-employed individuals – Both professional and non-professional self-employed individuals are eligible for such loans. These include:
- Self-employed (professional) – Secretaries, CAs, doctors, architects, etc.
- Self-employed (non-professional) – Retailers, manufacturers, traders, proprietors, etc.
For private limited or limited companies, financial institutions preferably look for concerns which have a net income of more than Rs. 1,50,000 per annum. For partnership or proprietorship firms, lenders look for a minimum of 25% stake from each partner. Also, the enterprise should be older than three years and should have its income tax returns filed for at least the last year. The applicant should be between 25 and 55 years of age.
The above-mentioned business loan eligibility criteria may vary between lenders. So, an applicant may have to submit some other relevant financial documents during verification.
Necessary documents required for business loans
An applicant has to submit the following documents when he/she applies for a business loan.
- KYC documents including Aadhaar, PAN, Voter ID, passport, etc.
- Certificate of business existence to proof of establishment.
- Last month’s bank account statement.
- Relevant financial documents.
Checklist to follow when applying for business loans
A business loan can help an organisation come out of severe financial crisis. However, an applicant should take some additional steps to improve the chances of getting credit with the best available terms. Let’s take a look at a checklist that will ensure your loan application gets approved at the first go.
- Show a potent business plan – Financial institutions prefer enterprises which have clear strategies to sustain and grow. Lenders are more likely to approve your request for business finance if you apply with a scheme that shows how you plan to utilise the funds to achieve your goals.
- Know about your credit score – Credit score is another crucial factor that determines the chances of loan approval. It is a parameter used by various lending institutions to evaluate one’s capability of repayment. A good credit score (750+) can also help you earn a competitively lower interest rate.
- Select the best borrower – A substantial number of financial institutions offer business loans in India. However, it is vital that you select a lender who gives you the best terms against your borrowed money.
Look for important factors like the amount of money provided as credit, interest rate, tenor, etc. Ideally, you should select a lending company that offers a balance between all the above-mentioned factors.
Only have to provide some necessary details online to check your pre-approved offer.
So, business loans have multiple benefits for your firm. These unsecured loans provide the much-needed assistance to sustain, grow and overcome major financial hurdles faced by SMEs across the country. With their ample amount of funding, quick disbursal, and approachable terms, a business loan has become one of the most sought after financial products among organisations across India today.