Business- Big or small. Every business needs funds and investments and sometimes it becomes the biggest obstacle in our way to open or set up a business. The two types of business- Capital intensive and Labour intensive, both of it needs a decent amount of capital to set up and to run the business, eventually.
A business needs an adequate amount of fund specifically in the development stage or growth stage when it needs to establish and stabilize.
Majority of businessmen depends on seeking loans and later paying it in instalments.
However, business loans are classified into two categories-
- Short term Loans
- Long term Loans
In India, two types of loans are offered as Business Loans-
Professional loans offered to people who practice self-employed professions and offer individual services such as doctors chartered accountants and lawyers, based on their individual credit history. The amount of loan that is extended largely varies from bank to bank and also on the relationship one share with the bank as this loan is mainly offered on the basis of the rapport of the individual and their profession. In most of the cases, the loan is offered on the basis of collateral deposited in the form of mortgage in form of lands, etc.
National Saving Certificates, Government Bonds, Bank’s Term Deposits, and Assignment of Life Insurance Policies etc. are required especially for loans extending over a certain threshold limit of say Rs 15-20 lacs. These loans are usually long term in nature and have payback tenure of about 5-7 years.
Documents needed for seeking Professional loans-
- Plan of the business, how it will be used and complete repayment strategy plan.
- Bank and financial statements of the last 12 months
- Business Documents
- IT returns and Balance sheets of the past 2 years.
2. Trade Loans
Businesses that can enjoy trade loans-
- Sole Proprietorships
- Private Limited Companies
The Trade loans comprise three categories
Overdraft loan can be taken against salary accounts, savings account, or term deposits. Bank overdraft allows you to meet short term funds requirements with a flexible repayment option. In the case of loans, the overdraft is the deposit of surplus funds to save interest on loans.
Overdraft limit is also available on an individual basis for personal utilization based on his credit history.
- Working Capital Loan
Working Capital loan is a loan that is taken to finance a company’s everyday operations. These loans are not used to buy long-term assets or investments and are, instead, used to provide the working capital that covers a company’s short-term operational needs.
Those needs can include costs such as payroll, rent, and debt payments. In this way, working capital loans are simply corporate debt borrowings that are used by a company to finance its daily operations.
- Term Loan
A term loan is a loan from a bank for a specific amount that has a specified repayment schedule and either a fixed or floating interest rate. A term loan is often appropriate for an established small business with sound financial statements. Also, a term loan may require a substantial down payment to reduce the payment amounts and the total cost of the loan.
Documents required for Various Trade Loans-
- Proof of business continuity of the past 2 years.
- Bills such as electricity bill and salary paid to employees
- Certificate of Registration
- Company Address Proof, Self Attested PAN card of the company
- KYC of individual customers and photographs