A business loan is a type of financial assistance designed for individuals or businesses who want to start, expand, or purchase equipment for their ventures.
Entrepreneurs seeking capital to launch their startup or scale their operations often rely on business loans as a convenient funding option.
These loans are especially well-suited for small businesses in India, offering them the financial support they need to grow and thrive.
Secured business loans are loans taken against a personal guarantee or valuable asset used as collateral.
Examples include inventory loans, equipment loans, and term loans.
In this type of loan, the borrower pledges assets such as land, machinery, or property as security for the loan amount.
The biggest advantage of secured business loans is that they typically come with a lower rate of interest, since the lender’s risk is reduced.
Unsecured business loans are loans provided without requiring any collateral from the borrower.
A credit score is a three-digit number, typically ranging from 300 to 900, that reflects your creditworthiness to lenders.
Banks and financial institutions use this score to evaluate your reliability as a borrower. A high credit score can help you secure business loans at lower interest rates.
Generally, a credit score of 750 and above is considered good by most lenders. Conversely, a low credit score may lead lenders to view you as a higher-risk borrower, resulting in higher interest rates or even rejection of your loan application.
It is always advisable to check your credit score before applying for a business loan to ensure better borrowing terms.
Having a long and positive credit history can help you secure a business loan at lower interest rates.
Lenders review your past financial transactions and credit behavior to assess your creditworthiness. If your credit record is strong and consistent over time, banks and financial institutions are more likely to view you as a reliable borrower, which often results in more favorable interest rates.
On the other hand, if your credit history is poor or shows inconsistencies, lenders may consider you a higher-risk customer, leading to higher interest rates on your loan.
Typically, larger business loans come with lower interest rates compared to smaller loans.
Therefore, taking a sufficiently sized loan to cover your business needs can be more cost-effective, as interest rates often vary based on the loan amount.
Before applying, make sure to carefully calculate all your business requirements, including expenses for labor, equipment, inventory, and other operational costs, to determine the optimal loan amount.
If you maintain a good relationship with your lender and are an existing customer, you may be able to negotiate a lower interest rate on your business loan.
A strong, long-term relationship with the bank can help reduce borrowing costs, as many lenders are willing to offer better rates to reliable and loyal customers.
Term loans are available in different types, including short-term loans, long-term loans, and other small business loan options.
The loan amount depends on the applicant’s profile and business needs and is typically repaid over 12 months to 5 years through Equated Monthly Installments (EMIs).
Term loans are generally categorized into two types: secured and unsecured business loans.
Secured loans require the borrower to provide collateral to the lender, whereas unsecured loans do not require any collateral.
Working capital loans are designed to help businesses manage their day-to-day operational needs and maintain smooth cash flow.
These loans can also be used for purposes such as business expansion, purchasing equipment or machinery, buying raw materials or goods, paying salaries or rent, increasing inventory, and other operational expenses.
Typically, lenders offer repayment tenures of up to 12 months, though the duration may be extended depending on the business requirements and the lender’s discretion.
Invoice discounting is a financial service provided by banks and NBFCs to help businesses manage their working capital.
Also known as bill discounting, it allows sellers who provide goods on credit to receive immediate funds by selling their invoices to a financial institution at a discounted rate.
In this process, the financial institution advances a portion of the invoice amount to the seller, while the buyer pays the full invoice amount to the institution at a later date.
The invoices used in this process are generally referred to as Bills of Exchange, and payment can sometimes be facilitated through a letter of credit, giving the buyer the option to purchase goods from the seller.
A Letter of Credit (LC) is a financial instrument commonly used in international trade, where a bank provides a payment guarantee to businesses involved in importing and exporting goods.
When companies engage with unfamiliar overseas suppliers, they need assurance that payment will be made once the goods are delivered.
A Letter of Credit serves this purpose by assuring exporters or suppliers that they will receive payment, thereby facilitating secure and trustworthy international transactions.
A Point of Sale (POS) loan is a type of credit facility that allows merchants to provide financing to their customers at the time of purchase.
This type of loan is available to business owners, enterprises, MSMEs, entrepreneurs, and retailers, helping them either start a new business or manage existing operations.
Also known as a Merchant Cash Advance, the loan amount is typically determined based on the business volume generated through POS terminals, providing flexible funding according to sales performance.
An overdraft allows an account holder to withdraw money from their current or savings account even if the balance is zero or insufficient.
Interest is charged at a pre-agreed rate when the overdrawn amount remains within the limits set by the bank.
Importantly, interest is applied only on the amount actually used, not on the total sanctioned limit.
Ans. A credit score of 750 or above is generally considered good by financial institutions. The maximum credit score is 900, and the closer your score is to this number, the higher your chances of quick approval and better interest rates.
Ans. For short-term business loans, the repayment tenure typically should not exceed 12 months. However, for larger loan amounts, you may opt for a tenure of up to 5 years depending on your business requirements and cash flow.
Ans. GST payment history plays an important role in loan approval. Higher GST payments usually indicate a larger business volume, which increases the lender’s confidence in your repayment ability.
Ans. The minimum annual turnover requirement is set by individual lenders and may vary from bank to bank. It’s important to check the specific eligibility criteria with your preferred lender
Ans. Pre-closure and part-prepayment charges differ from lender to lender. Some banks may not charge anything, while others may charge up to 5% of the outstanding loan amount. Always confirm the charges with your lender before proceeding.
Ans. Popular government-backed schemes include:
These initiatives aim to support MSMEs, startups, and entrepreneurs by providing easier access to credit.
Karnataka Bank posted a net profit of ₹411.63 crores in Q2 of FY 2022–23, a remarkable jump from ₹125.61 crores in the same quarter last year - reflecting a 227.70% growth in profit.
State Bank of India (SBI) has announced revised charges for its credit card customers, effective November 15, 2022:
• Processing fee on merchant EMI transactions: Increased to ₹199 + applicable taxes (earlier ₹99 + taxes).
• Processing fee on rent payments: Set at ₹99 + applicable taxes.
This move is expected to impact customers who frequently use EMI or rent payment options via SBI credit cards.
As part of the Government of India’s initiative, SBI has inaugurated a Digital Banking Unit (DBU) in Goa. This facility will enable customers to access banking products and services 24×7, ensuring that the benefits of digital banking reach every corner of the country.