Business Loan: Know Meaning, Types and How to Apply

Starting a business is very exciting, but like any other thing, it also comes with its own set of challenges. This is something that needs a great amount of time, effort, and, most importantly, money. No matter what type of business you are planning to start, you will always need some working capital. And even after that, a good amount is required to run day-to-day operations or expand the business. Sometimes, arranging enough funds can be a major problem. This is when the need for a business loan arises.

What is a Business Loan?

As the name suggests, a business loan is a type of financing option designed for business owners. People who are either planning to start a business or have already been running one but require some additional working capital can apply for this. These funds can be used to cover a number of expenses, such as employee salaries, infrastructure costs, business expansion, etc. However, the borrower cannot use the loan amount for any other purposes.

Since this is an unsecured loan, a detailed background verification is done by the lending institution. It helps them to understand the creditworthiness of the borrower. This also determines the loan amount a business is eligible for as well as the applicable rate of interest.

Some of the key benefits of applying for a business loan are:

Simplified application process
Low interest rates
Easy documentation
Quick disbursal
No loss of business ownership

Types

Every business is different, and so are their capital needs. There are several different types of business loans, depending on the purpose they are being obtained for. Here are a few common ones:

Term Business Loan: These are short-term loans with a tenure ranging from 1 to 5 years. Unlike several other financing options, term business loans don’t offer any additional benefits. However, the loan application process is very simple, with a quick turnaround time. All you need to do is mention the purpose of the loan, and the loan will be sanctioned on the basis of your business credit history.
Working Capital Loans: Somewhat similar to term loans, these business loans also have a short loan tenure (1–5 years). You can obtain these types of loans to manage your business operations. With the loan amount, you can cover a number of expenses, such as rent or employee salaries.
Commercial Business Loans: These business loans are designed to cater to the financial requirements of large businesses. The loan amount is also relatively higher, and the tenure can range anywhere from 3 to 5 years. Commercial business loans are suitable for businesses with high turnover.
Startup Loans: This is the most popular type of business loan. A startup business loan can help entrepreneurs expand their small businesses and run their operations smoothly. These loans come with several loan tenure options and offer enough flexibility in terms of repayment.
Equipment Financing: As the name suggests, this type of business loan is usually obtained to fund the purchase of any kind of equipment. These loans come with a quick turnaround time and can help a business raise immediate capital.

Eligibility Criteria

Although the eligibility criteria for a business loan can vary from one lender to another, a few things always remain the same. Some of them are:

The applicant’s age should be between 21 and 65 years of age.
The applicant and co-applicant (if any) should be Indian citizens.
The applicant(s) should have a good CIBIL score.
The business should not fall under the blacklisted/excluded category.
The business should have been operational for two years or more.

Document Requirements

Here is a list of documents that are required to complete a business loan application:

Identity proof and address proof of the applicant
PAN card of applicant(s)/firm (in case of partnership)
Last 6-12 months' bank statement of the main business account
Relevant document(s) for credit assessment
GST details
Proof of business registration

How to Apply?

Most lending institutions give the option to apply for a business loan online. Or, you can also visit their branch and submit your loan application. Generally, the process involves a few simple steps, such as:

Compare all the loan schemes available and pick one that suits your requirements.
Fill out the application form.
Upload all the relevant documents.
Submit the loan application.

Suggested Read: HOW TO APPLY BUSINESS LOAN ONLINE?

At Muthoot Finance, we offer hassle-free and quick business loans for startups at competitive interest rates. You can explore all the schemes and apply for a business loan that suits your specific needs. Or, visit your nearest Muthoot Finance branch to know more.