Business Loan: Meaning, Types and How To Apply?

Every business needs constant capital to ensure expansion and long-term sustainability. However, during a cash crunch, business owners seek external funding. Some entrepreneurs offer company equity to raise external funds, while others prefer business loans. These loans are credit products that do not require pledging of any asset, equity or otherwise, to raise capital.

This blog will help you understand everything you need to know about business loans, like business loan meaning and business loan details.

What Is A Business Loan?

The business loan meaning is a loan product offered to business owners who have a running company but require external funds for operations. The investment cover expenses such as employee salaries, rent, buying equipment, or expanding the business in other cities.

Lenders analyze the business owner's creditworthiness through factors such as credit score and business turnover. However, entrepreneurs or business owners are legally bound to use the loan amount only to cover business expenses and not use the loan amount to cover personal expenditures.

Repayment is also a factor in the business loan definition, as the lenders charge interest on the principal amount the borrower must repay in full within the loan tenure.

Types Of Business Loans

No business has a similar capital need as they belong to multiple industries and sectors. Lenders ensure that they effectively cater to the capital needs of every type of business through specialised business loans. Here are some of the most common business loans available to business owners in India.

• Term Business Loans:

They are straightforward, short-term loans without additional benefits. Such loans have a short loan tenure of 1-5 years. These loans require the borrower to mention the purpose of the loan, and the amount sanctioned is based on the business credit history.

• Working Capital Loans:

Similar to term loans, working capital business loans are also short-term and come with a tenure of 1-5 years. However, business owners avail of such loans to fulfill short-term and current liabilities such as daily or approaching expenses such as rent or employee salaries.

• Commercial Business Loans:

Commercial business loans cater to the capital needs of businesses with high turnover. These loans offer immediate capital up to Rs 50 lakh with a 3-5-year tenure. The loan is for enterprises that have been at least running for a year and are profitable.

• Startup Loans:

As startups have become widely popular in India, lenders offer startup loans to entrepreneurs who want to expand their current businesses. These loans do not require pledging any valuable asset as collateral and offer repayment flexibility to budding entrepreneurs.

• Equipment Financing:

This business loan allows business owners to raise immediate capital to buy equipment such as machinery or the latest technology. However, entrepreneurs can also use the loan for other business expenses.

Eligibility Criteria For Business Loans

The business loan details require fulfilling the set eligibility criteria, including the following.

1. Established enterprises operating for more than six months at the time of application
2. Minimum turnover of Rs 90,000 in the last three months from the time of application
3. The business does not fall under any category or list of blacklisted/excluded businesses
4. The office/business location is not on the negative location list
5. Charitable organisations, NGOs, and trusts are not eligible for a business loan

Documents Required For NBFC Business Loan

Here are the documents Proprietorships, Partnerships, and Pvt. Ltd/ LLP /One Person Companies will need to submit to complete the application for a business loan:

1. KYC documents – Identity proof and address proof of the borrower and all co-borrowers
2. PAN Card of the borrower and all co-borrowers
3. Last (6-12 Months) months' bank statement of the main operative business account
4. Signed copy of standard terms (term loan facility)
5. Additional document(s) for credit assessment and processing loan requests
6. GST Registration
7. Previous 12 months’ bank statements
8. Proof of business registration
9. PAN Card and Aadhar Card copy of the Proprietor(s)
10. Deed copy and company PAN Card copy in the case of partnerships

How To Apply For Business Loans

Here is how you can apply for a business loan with a quality lender:

Step 1: Visit the lender's website and navigate to the business loan section.
Step 2: Click “Apply Now” and fill out the application form.
Step 3: Submit all the relevant documents needed for completing KYC.
Step 4: Click the “Submit” button to complete the loan application process.
Step 5: After review, the lender will approve the loan in under 30 minutes and disburse the amount within 48 hours into the borrower’s bank account.

Avail Of An Ideal Business Loan From IIFL Finance

IIFL Finance offers financial services like customised and comprehensive business loans and provides extensive business loan details for transparency. The business loan does not need collateral and offers instant funds up to Rs 30 lakh with a quick disbursal process. The application process is entirely online with minimal paperwork with attractive and affordable interest rates to ensure the repayment doesn’t create a financial burden.

FAQs:

Q.1: Do I need collateral for a business loan from IIFL Finance?
Ans: No, IIFL Finance business loan does not require pledging any asset as collateral to take the business loan.

Q.2: What is the minimum credit score for an IIFL Business loan?
Ans: The minimum credit score is 750 out of 900.

Q.3: What is the loan tenure for IIFL Finance business loan?
Ans: The loan tenure for a business loan up to Rs 30 lakh is up to five years.