A business loan is an unsecured loan specifically intended for business purposes. It is provided by Banks and NBFCs in India. Like other loan, it involves the creation of a debt which will be repaid with added interest. All types of businesses such as a sole proprietorship, privately held company, partnership firms, self-employed individuals and retailers can avail these loans.
Start up business loans can go a long way in meeting essential requirements such as business expansions, dealer and vendor financing etc. Given that these are provided without any collateral or security, it makes it very easy to apply for a bank loan for business. Another attractive feature of business loan obtained by a company is that in the event of a loan default, the company can be liquidated to pay off the dues.
For a startup, approaching a bank or NBFC for a business loan is a better proposition compared to seeking investment from venture capitalists. Unlike VCs, banks do not ask for any equity dilution. Moreover, banks also structure loans depending on their unique requirements.
Foremost, a business loan interest rate remains fixed throughout the tenure. However, depending on the profile of the borrower, a lender may also offer a floating rate of interest, in which case the interest rate will vary throughout the tenure of the loan. Typically, rates vary between 11%- 19% (subject to change).
A bank loan for business is offered up to Rs. 50 lakh. Be mindful that the quantum of the loan depends on the profile of the borrower. However, credit history is also crucial while the loan application is processed. If you have a decent credit score, it will be easier to get a higher amount at an attractive rate of interest.
The repayment tenure of the loan is between 1 to 5 years and depends on the ability to repay.
Availing start up business loans is also preferred because there’s minimal paperwork. Most financial institutions only require KYC documents to process the loan application. This makes the process hassle-free.