In this episode, Nishant Jasapara, Business Head - Digital Finance, IIFL, explains the benefits of Business Loans.
Any business would require an adequate amount of capital to cover the expenses and let the business run without any hassle. A business loan is a debt which a business firm takes from a financial institution with the obligation to repay it according to the loan terms.
A business loan is generally taken by SMEs (Small & medium enterprises) and MSMEs (Micro SMEs). These can also be taken by traders/shopkeepers, dealers/stockiest/distributors, small manufacturers, service industries like travel agents/hotel and restaurants contractors, etc. and even professionals like architecture, CAs, doctors, etc.
In basic terms, a micro enterprise is when the investment in plant and machinery does not exceed 25 lakhs. A small enterprise is when the investment in plant and machinery is 25 lakhs to 5 crores, and a medium enterprise is when the investment in plant and machinery is 5-10 crores.
As these companies are not big enough or do not have enough capital, they require business loans for:
For a while now, banks have been going through the problem of bad loans, and hence, are unwilling to give loans to many SMEs and MSEs. Therefore, small businesses face issues related to getting the required amount of loans to run their business.
Non-Banking Finance Companies (NBFCs) have stepped up and have emerged as loan providers to SMEs and MSMEs in order to meet their funding needs. Hence, in FY17, the share of banks in new credit dipped to 35%, while non-bank sources met the remaining 65% of credit demand in FY17.
Non-banking sources lend as much as 9.25 lakh crore to business, crushing the bank credit flow of 5.02 lakh crore. The unwillingness of banks and the sophisticated process of obtaining loans has pushed the business more towards the Non-Banking institutions.
Among the products offered by the lenders to the business are:
To obtain a loan from any source available in the market, the business will be required to present certain documents like:
Underwriting process is a very important step in the process of lending loans to businesses. Every company has to go through a screening process, which evaluates certain parameters like whether the business can repay the loan amount.
Following are the benefits non-banking institutions provide, but banks don’t:
IIFL SME Business loans require minimum documentation and are available at attractive rates. We work on six simple steps:
It only takes us 2-3 days to disburse the loan amount, and the business loans we provide are without any collateral.
Mr. Nishant is a Chartered Accountant and a Company Secretary with 15+ yrs of experience in the Retail lending space and has handled multiple product suites across Business Development, Sales, Product and Credit. Prior to joining IIFL, he has also worked with Tata Capital, ICICI Bank & Time of Money Ltd where he has handled multiple roles and responsibilities for Business Loans, Loan Against Securities and Consumer Durable Loans at different points in time.
Business loan is a debt taken by micro, small and medium enterprises (MSMEs or SMEs) from a bank or non bank finance corporations to fulfill their capital needs. If you are a businessman and have a legal and certified business, you can take a business loan from a finance institution.
business loan can range from Rs3lakh to Rs50lakh. It also depends on a financial institution to sanction the applied amount after underwriting your business thoroughly.
The interest rate is fixed and will not change until you have repaid the loan completely.
The tenure for a business loan is 12 months to 36 months, depending on the loan amount.
You can choose any of the modes from direct debit, ACH/ECS (Electronic Clearance Service) or Post dated cheques to repay such loans.
Banks usually take longer to disburse loans. Unlike banks, it only takes 1-4 days to get a loan if you choose a non-banking financial institution.
Among several unique facilities, Term loans come with facilities like overdraft and invoice discounting.
Documentation includes: proof of identity, proof of address, bank statements, business registration certificate and financial statements related to the business.
Yes, all applications are scrutinized by underwriters. You will have to go through an underwriting process, the parameters for which are: promoter’s profile, business plan, vintage, financial statements, banking analysis, credit bureau history and market references.
If you are taking a loan from a non-banking financial institution, you do not need collateral. It is an unsecured loan. In certain cases you would need to have a co applicant taken in the loan.