Things You Should Know About Business Loans in India

When you have to run a business, a crucial aspect you must focus on is the cash flow. No venture can go on if there is no money to pay for daily expenses and other long-term goals. But like enterprises, you may have to sell goods on credit and purchase materials with cash. This will affect your cash flow and delay crucial tasks like buying new assets or materials. If this is the case, you can opt for a business loan.

Many banks and NBFCs provide MSME business loan offers to eligible enterprises. You may or may not have to offer security based on the amount and the loan tenure you prefer. As it is a business loan, you can only use it for work-related needs. Read on to learn about the key aspects of a business loan in India.

About MSME Business Loan in India

When it comes to an MSME loan in India, you can apply with a bank or NBFC. But before you apply, it is vital to learn about the types of business loans you can take out in India. Here are the various business loan types that you may opt for: –

• Unsecured Loan: To get this loan, you do not need to give security to the bank or the NBFC. The maximum amount you can get here is between Rs. 10 lakh and Rs. 20 lakh. The tenure for this loan can last from 3 years to 5 years. You can use this money for any work-related tasks or expenses that you desire. 
• Secured Loan: If you want to acquire any new assets for our venture, you may opt for a secured MSME loan. The asset you get with this loan must be placed as a security with the lender, who will create a charge over it. The interest rate for this loan type is lower than that for an unsecured loan. The repayment term can go up to 7 years for such loans. 
• Loan against Property (LAP): If you own an idle property and need money, you need to apply for a LAP. The lender will pledge the property and create a charge against it. The maximum amount for such a business loan goes up to Rs. 5 crore with some lenders. The loan tenure can go up to 20 years, and the interest rate is also lower. This money can help with major expenses like buying machinery or land. 
• Working Capital: If you need money to pay for daily expenses like salary, wages, freight, etc., then a working capital loan is what you need. This short-term loan can help you take care of expenses until you get money from your debtors. The tenure for such a business loan is around 3–5 years, and the maximum amount can go up to Rs. 10 lakhs with banks and NBFCs. 
• Debt Consolidation: If you have many high-interest loans in your business and are looking to reduce your burden, this is the right MSME loan for you. Herein, your new lender will pay the debts of all other lenders, and you will have only one loan to take care of. The maximum amount and tenure will depend on the lender you choose. 
• Professional Loan: If you are a doctor, engineer, CA, or any other professional and want to start your own office, you can opt for this loan. You must have a license and enough experience in your field to get this loan. The money here can only be used for your business-related tasks.

Eligibility for a Business Loan

If you want to apply for a business loan, you must meet the rules given by the bank or NBFC. While the particulars might vary across lenders, some key aspects that you must consider before you apply for an MSME loan are:

• Credit score: You must have a credit score of more than 680 to apply for a business loan. The lenders would also need credit scores from other partners and directors. Some lenders can also accept credit scores of 650 or higher for an MSME loan.
• Business Age: Your business must be more than three years old to be eligible for a business loan. This is vital for the lender to ascertain if your business has a track record that can help you know more about your profitability.
• Applicant Age: Every applicant must be over 23 years old at the time they apply for a loan. The maximum age that a lender will accept is 65 years old.
• Profitability: Many lenders will ask for your financial history. This will help the lender see if your business is making a profit and is in a position to pay the EMIs on time. Your business must have had a profit record for the last two years.
• Documents: You will need to give the lender the papers to process an MSME loan. This will include trading accounts, P&L accounts, the balance sheet, the cash flow statement, IT returns, and any other details that the lender may need to assess your application.
• Loan History: If you have previously taken any loans, then the lender may ask you for the loan statement. This will help the lender know if you paid the EMIs on time or if there were any defaults.

You will need a business loan at some point in time to keep your growth plans on track. It would be best if you opted for a reputed lender with a transparent approach. Piramal Finance is a leading NBFC in India that offers various business loans with great terms. You can get in touch with them for your business loan needs. To know more about using an MSME loan, you can also read their blogs and articles that offer in-depth facts about such loans.