Business Loan Guide

What is a Business Loan?

A business loan is a financial product specifically designed to meet the funding needs of businesses. Whether you're starting a new venture, expanding an existing business, managing cash flow, or purchasing equipment, a business loan provides the necessary capital to achieve your business goals.

Key Features of Business Loans

• Purpose-Specific: Designed exclusively for business requirements
• Flexible Amounts: From ₹5 lakhs to ₹2 crores and more
• Variety of Options: Secured and unsecured options available
• Tax Benefits: Interest paid may be tax-deductible as business expense
• Flexible Tenure: Repayment period from 12 months to 5 years
• Quick Processing: Faster approval compared to other loan types

Types of Business Loans

Business loans come in various types to suit different business needs. Understanding these types will help you choose the right loan for your specific requirements:

1. Term Loan

A term loan provides a lump sum amount that can be used for business expansion, purchasing machinery, or other long-term investments. These loans have fixed repayment schedules and can be secured or unsecured.

2. Working Capital Loan

These loans are designed to finance day-to-day business operations, including inventory purchases, salary payments, and other operational expenses. They help maintain smooth cash flow in the business.

3. Machinery/Equipment Loan

Specifically for purchasing new machinery or equipment. The machinery itself often serves as collateral, making these loans easier to obtain with favorable terms.

4. Business Overdraft

A flexible credit facility that allows you to withdraw funds up to a certain limit. Interest is charged only on the utilized amount, making it ideal for managing fluctuating cash flow needs.

5. Invoice Financing

Also known as bill discounting, this allows businesses to get immediate cash against their unpaid invoices. It's particularly useful for businesses that have long payment cycles with their customers.

6. Letter of Credit

A financial instrument from a bank guaranteeing payment to a seller on behalf of the buyer. Essential for import-export businesses and large transactions.

7. Trade Finance

Specifically designed for businesses engaged in import and export activities. Includes various instruments like letters of credit, bank guarantees, and export credit.

Eligibility Criteria

To qualify for a business loan with Finvare, you need to meet certain eligibility criteria. These may vary based on the loan type and amount, but the following are the general requirements:

Business Vintage

• Minimum business vintage: 3 years
• For startups: At least 1 year of operation (with special conditions)
• Profitable business for the last 2 consecutive years

Business Turnover

• Minimum annual turnover: ₹10 lakhs
• Preferred turnover: ₹25 lakhs and above
• Consistent growth in turnover over the last 3 years

Profitability

• Business should be profitable for at least the last 2 years
• Minimum net profit margin: 10% of turnover
• No history of losses in the recent past

Business Documentation

• Proper business registration (Partnership, Pvt. Ltd., LLP, etc.)
• All necessary licenses and permits for the business
• Regular GST filing and tax compliance
• Proper bookkeeping and financial records

Owner's Profile

• Minimum age: 21 years
• Maximum age: 65 years at loan maturity
• Good credit score (650+)
• No history of loan defaults
• Relevant experience in the business field

Documents Required

Having all the necessary documents ready can significantly speed up your business loan application process. Here's a comprehensive list:

Business Registration Documents

• Certificate of Incorporation/Registration
• Memorandum & Articles of Association (for companies)
• Partnership Deed (for partnership firms)
• LLP Agreement (for LLPs)
• Business address proof
• Shop & Establishment Act License
• MSME Registration Certificate (if applicable)
• GST Registration Certificate

Financial Documents

• Last 3 years Audited Financial Statements (Balance Sheet, P&L)
• Last 3 years Income Tax Returns with Computation of Income
• Last 6 months Bank Statements (all business accounts)
• Provisional financials for the current year
• Debtors and Creditors aging statement
• Inventory statement

Business Proof Documents

• Business PAN card
• GST Returns for the last year
• Key contracts and agreements
• Utility bills (electricity, telephone) for business premises
• Rental agreement (if business premises is rented)

Owner/Partner Documents

• PAN card of all partners/directors
• Aadhaar card of all partners/directors
• Voter ID/Passport/Driving License
• Residence proof of all partners/directors
• Photographs of all partners/directors

Project-Specific Documents (if applicable)

• Detailed project report
• Quotations for machinery/equipment
• Property documents (for secured loans)
• Supplier/customer contracts

Interest Rates & Fees

Business loan interest rates vary based on multiple factors. Here's a detailed breakdown to help you understand the cost of borrowing:

Interest Rate Range

• Unsecured Business Loans: 12% - 24% per annum
• Secured Business Loans: 10% - 18% per annum
• Working Capital Loans: 11% - 20% per annum
• Machinery Loans: 10% - 16% per annum

Factors Affecting Interest Rates

Factor	Impact on Interest Rate
Business Vintage	Older businesses get lower rates
Turnover & Profitability	Higher turnover and profits get lower rates
Credit Score	Score above 750 gets preferential rates
Collateral	Secured loans have lower rates
Industry Type	Low-risk industries get better rates
Relationship with Bank	Existing customers get better rates

Fees and Charges

• Processing Fee: 1% - 3% of loan amount (one-time)
• Valuation Charges: ₹5,000 - ₹15,000 (for secured loans)
• Legal Charges: ₹10,000 - ₹25,000 (for secured loans)
• Prepayment Charges: 2% - 5% (varies by loan type)
• Late Payment Charges: 2% - 3% per month on overdue amount
• Cheque Bounce Charges:₹750 - ₹1,500 per instance
• Documentation Charges: ₹2,000 - ₹5,000
• Annual Maintenance: Nil for most business loans

Application Process

Applying for a business loan with Finvare is a systematic process. Follow these steps to get your business loan approved quickly:

Step 1: Initial Assessment

Assess your business funding requirements and determine the loan amount you need. Use our online eligibility calculator to check if you qualify for the loan.

Step 2: Document Preparation

Organize all required documents as listed in the documents section. Having them ready in digital format will speed up the application process.

Step 3: Online Application

Fill out our online application form with accurate business and personal details. Provide complete information about your business, financials, and loan requirements.

Step 4: Document Submission

Upload all required documents through our secure portal. Ensure all documents are clear, legible, and up-to-date.

Step 5: Business Verification

Our team will conduct a thorough verification of your business. This may include:

• Financial statement analysis
• Business premises visit
• Market reputation check
• Industry analysis

Step 6: Loan Sanction

Based on the verification, we'll determine your loan eligibility and send you a sanction letter with loan details including amount, interest rate, tenure, and terms & conditions.

Step 7: Agreement and Disbursal

Review and sign the loan agreement. Once all formalities are completed, the loan amount will be credited to your business account within 24-72 hours.

Tips for Quick Approval

Want to get your business loan approved quickly? Follow these tips to increase your chances of fast approval:

1. Maintain Proper Financial Records

Keep accurate and up-to-date financial records. Proper bookkeeping not only helps in getting loan approval but also reflects positively on your business management capabilities.

2. Build a Good Credit History

Ensure all business loans and credit cards are paid on time. A good credit history (both business and personal) significantly improves your chances of approval.

3. Have a Solid Business Plan

For new businesses or expansion loans, have a detailed business plan including market analysis, financial projections, and growth strategy. This shows lenders that you've done your homework.

4. Maintain Healthy Banking Relationships

Have a good relationship with your primary bank. Regular transactions and maintaining healthy account balances can help in getting better loan terms.

5. Apply for the Right Amount

Apply for a loan amount that your business can comfortably repay. As a general rule, your total EMIs should not exceed 50% of your business income.

6. Keep All Documents Updated

Ensure all your business registrations, licenses, and permits are valid and up-to-date. Expired documents are a common reason for loan rejection.

7. Show Consistent Growth

Demonstrate consistent growth in turnover and profits over the years. Even if growth is slow, showing consistency is better than showing volatility.

8. Consider Collateral

If possible, offer collateral for your business loan. Secured loans have better approval rates and lower interest rates.

9. Have Strong References

Provide references from your major customers, suppliers, or other business associates. Good references add credibility to your application.

10. Be Transparent

Be honest and transparent in your application. Hiding information or providing false details can lead to immediate rejection and may affect future applications.

Frequently Asked Questions

What is the minimum and maximum business loan amount I can get?

At Finvare, you can avail business loans starting from ₹5 lakhs up to ₹2 crores. For larger requirements, we can arrange syndicated loans or help you connect with other financial institutions.

Can startups get business loans?

Yes, startups can get business loans, but they need to meet additional criteria. We look for strong business plans, experienced promoters, market potential, and sometimes require collateral or personal guarantees.

What is the difference between secured and unsecured business loans?

Secured business loans require collateral (property, machinery, inventory) and have lower interest rates (10-18%). Unsecured loans don't require collateral but have higher interest rates (12-24%) and stricter eligibility criteria.

How long does it take to get a business loan approved?

The approval process typically takes 7-14 working days for most business loans. Working capital loans with complete documentation can be approved in 3-5 working days, while large secured loans may take 2-3 weeks.

Can I prepay my business loan?

Yes, you can prepay your business loan after a minimum period of 6 months. Prepayment charges vary from 2-5% depending on the loan type and tenure. Some loans may have no prepayment charges after a certain period.

What happens if my business faces difficulties in repaying the loan?

If you anticipate difficulty in repayment, contact us immediately. We offer restructuring options, temporary relief measures, or can help you refinance the loan. Early communication is key to finding a solution.

Do I need to provide a personal guarantee for a business loan?

For most business loans, especially unsecured ones, personal guarantees from promoters/directors are required. For secured loans, personal guarantees may not be required if the collateral value is sufficient.

Can I get a business loan if I have a low credit score?

While a good credit score (650+) is preferred, we consider applications with lower scores on a case-by-case basis. Factors like business profitability, collateral, and relationship with us can compensate for a lower credit score.

What is the maximum tenure for a business loan?

The maximum tenure for business loans is typically 5 years. However, for certain types like machinery loans or secured loans, tenure can extend up to 7-10 years based on the asset life and business requirements.

Can I get multiple business loans?

Yes, you can have multiple business loans from different lenders, provided you have the repayment capacity. However, having too many loans can negatively impact your credit score and ability to get new loans.

Are there any government schemes for business loans?

Yes, various government schemes like MUDRA loans, CGTMSE credit guarantee, and sector-specific schemes are available. We can help you avail these schemes which often have lower interest rates and relaxed eligibility criteria.