Businesses need finance to operate effectively. Without proper funds, no business can succeed in the market. There are many activities for a business that needs financial support and a budget. Business loans are loans given by banks for the functioning of a business. Business loans are taken by owners of the business to expand their business, buy equipment, or even start a business. Different organizations and banks provide loans for businesses. The interest rates of these loans vary from bank to bank and organization to organization.
If you are looking to take a loan for business, then this article is the right fit for you.
The Different Types of Business Loans
This is one of the most common forms of business loans. A loan for a business can be either secured or unsecured. Depending on the credit history of the firm, the amount to be provided is determined by the lending organization. If the loan is unsecured, the tenure ranges from anywhere between 1 to 5 years, and if the loan is secured, the range can go from 15 to 20 years.
The startup loan is mainly given to start a new business or to fund a new business. In order to apply for a business loan and be eligible for the startup loan, the lending institution will consider the applicant’s personal credit history as well as the company’s. The business should have been established, and the applicant should submit all the necessary proof of the business and its turnover.
Working capital loans are funds disbursed for the day-to-day working of the business. Some businesses struggle to manage their operating capital and fall short of it. Working capital loans help to fix this gap in the shortage of funds. The business can also utilize this fund to cover the demands and the shortfalls.
This loan is provided to meet the expenses related to the equipment a firm needs to purchase. Manufacturing companies may require huge and costly machines to run their business. So equipment financing is a type of business loan that is available for these companies. Usually, the interest rates are lower for these types of loans compared to other business loans.
Characteristics of a Business Loan
- Smooth application process
- No hidden or additional charges
- Option for collateral-free loans
- Convenient repayment periods
- Less documentation
- High worth loans
Benefits of a Business Loan
The main advantage of a business loan is the fast disbursal. Banks will disburse the loan fast, and this makes it so convenient for the business owners. Within 48 hours, you can get your loan after the verification processes. This is really beneficial for urgent needs without having to wait for long periods.
Another benefit of business loans is that they are easy to get. One does not need much paper works and procedures to pass the loan. You can even get the loan without collateral. Also, some banks provide you with doorstep service meaning you will get the loan in your home without any real worries.
- Convenient Interest Rates
Banks do not charge a high-interest rate for business loans because of the competition. There are banks that give business loans at very low interest. Also, the interest rate depends on the credit score of the applicant and the business. The purpose for taking the loan is also a criterion in deciding the interest rates.
The Interest Rates for a Business Loan
The interest of the business loan varies from customer to customer and also from institution to institution. There are several factors that determine the rate of interest for the business loan. The business experience you have is a strong criterion for the business loan. Also, the credit score is another factor. The collateral you put forward is also a deciding factor for the business loan. Usually, the interest rate varies from 11.5% to 25%.
The Necessary Documents Needed to Apply for A Business Loan
- ID Proof
- Address Proof
- Bank Account Statement of last 6 months
- ITR of the last 3 years, certified balance sheets
- Profile of the business
- Proof of business existence with certificate
- Address proof of the office
One can apply for a business loan online or through the traditional way. The document required is the same when applying for a business loan online and directly.
Eligibility for a Business Loan
- The applicant has to be a self-employed individual
- Individuals who are self-employed and in the age between 26 to 66 can apply for a business loan.
- Must have three years of business experience.
One can apply for a business loan if he meets all the above criteria.
Business loans are very useful for business owners to get their business going and as well as to expand their business. They are easy to get and have a relatively low-interest rate compared to other types of loans.