It is
possible to manage the cash flow, upgrade business equipment and grow the
business by the option of business loans. Each bank has specific requirements,
criteria and eligibility factors. Here is the list of few banks document
requirements and other details mentioned.
To
avail a business loan, an applicant needs to provide the following documents as
per the lender’s requirements.
- Identity
Proof: Driving
License / PAN Card / Passport / Voters ID Card / Aadhaar Card.
- Address
Proof: Ration
Card /Telephone Bill / Electricity Bill / Passport / Trade license / Lease
agreement / Sales Tax certificate.
- Income
Proof: Bank
Statement of Last 2 Years.
- Financial
Documents: Last
2 Years ITR along with computation of Balance Sheet, income & Profit
& Loss a/c for the last 2 yrs.
- Proof
of Business Continuation
- Business
Ownership[ Proof: Other Mandatory Documents such as Sole
Proprietorship Declaration, Certified true copy of Memorandum &
Articles of Association
- Last
3 years audited financials.
Why And When Should You Apply For Business
Loan?
India
is home to tens and thousands of micro, small and medium scale businesses.
Every business here is distinct in its own way. However, one critical factor
that dominates every business here, irrespective of its type and sector – is
the requirement for finances.
No
matter what segment the business belongs to, at some point every business will
come across the time when it will need to secure funding. And when it comes to
procuring business funding then certainly business loans can’t be denied for.
Business loans are the most effective tools to provide businesses a quick
infusion of capital.
But
taking a business loan isn’t that easy. Finding reasons, for what exactly a
loan might be needed for and right time, when, you can’t perhaps do it without
a loan- has to be ascertained before you proceed to take out a loan. Well,
how to decide? To know more let’s dive through this article
Know More About Tax Benefits On Business
Loans In India?
- Interest
Repaid on a Business Loan Is Tax-Deductible
The
interest component of your business loan is tax-deductible. You can deduct this
amount from your gross income while calculating the income tax of your
business. Make sure to maintain the correct records of your business loan, so
that you can submit proof if later requested by the income tax
department.
- Principal
on Business Loan is NOT Tax-Deductible
The
principal amount you borrow in a business loan is not tax-deductible. You
cannot deduct this sum from your gross business income while calculating the
year’s taxes.
However,
the principal amount is not money earned by your business. What you are doing
is essentially borrowing money from a third-party and repaying it. Hence, it is
not considered as income for your business.
This
means you don’t have to include it in your gross income. You don’t have to pay
income tax for this amount, nor can you deduct it from your gross income.
Now,
that you are clear about the tax implications of business loans, you have to
understand,
- Tax
Deductible Expenses for Businesses
Tax-deductible
expenses work in favour of your business. These are expenses that can be
deducted from your gross revenue or profits, thereby helping you lower your
taxable income. Simply put, these expenses are subtracted from your overall
business revenues for the year, before you compute your tax liabilities.
- Business
Loans Taxation Rules: In a Nutshell
The
loan interest amount is tax exempted, if you can show proof that it was used
for a business-related expense like purchasing equipment, inventory, etc. The
principal amount does not offer any tax benefits as it is not tax-deductible.
However, it doesn’t increase the overall taxes you pay, as you don’t have to
include it in your gross revenue.
What Are The Benefits Of Business Loans?
Taking
up a business loan India offers a number of benefits to the
borrower.
- The
loaned amount can be used to serve various business purposes.
- Easy
and flexible repayment options offered by various NBFC’s (non-banking
financial institution) make the loan reimbursement a bit more
palatable.
- The
distinct customized loan types offered by lending institutions can be used
to meet the varying demands of the business as per the requirements.
- The
interest paid on business loans is tax-deductible due to it being termed
as a business expense. This reduction in interest payments lightens up the
borrower’s tax burden.
Business Loan- How Young Entrepreneurs Can
Benefit From It?
All
thanks to Start-up India & Digital India and the economic growth, start-ups
are on rise in India. And a majority of these start-ups have been
founded/co-founded by youths. This is a new breed of youths in India who is
choosing to be an entrepreneur and face the challenges of running a start-up
rather than choosing a secure, stable career in a top-notch company. These
young entrepreneurs have radical ideas and the energy, passion and dedication
to make it work. Yet only a handful of these start-ups have succeeded in
making the word, and a majority of them still are struggling to survive. A
majority of these young entrepreneurs are from technical backgrounds and excel
in their craft but struggle when it comes to managing the business as a whole.
The biggest struggle remains to find enough funds for working capital and to
keep the company afloat and manage the day-to-day expenses like paying for the
infrastructure and the salaries.
Whether
a start-up or a top MNC, money is the most crucial factor for any business. It
is typical of start-up to have multiple rounds of funding, with each level
arranging enough funds to go to the next level. However, only few start-ups get
their funding right and most of them remain underfunded. For later the
best option that remains is a Small Business Loan. A business loan can be used
to have enough capital to keep the business going. With the changing scenario,
all the top banks and NBFCs have come up with small business loans for
start-ups and new businesses.
What Are The Factors That Decide Business
Loan Interest Rate?
Business
loan interest rate is an important aspect that every borrower considers
before opting for a loan. In fact, for most of the borrowers picking the right
loan comes down to a single factor- interest rate. Interest rates largely hit
your loan terms and future business needs. Thus, determining the rates and
getting a clear picture about it is probably a crucial task. Usually, the
interest rates vary from lender to lender. However, there are certain factors
that affect the rates of interest imposed on you. Business Loan Interest
Rate in India is calculated based on these predetermined factors. Thus, if
you don’t wish to be caught by unexpected surprises pay heed to these business loan interest rate deciding
factors.
Credit Score
The
credit score is one of the primary tools that lenders assess to determine your
eligibility for a loan and hence your interest rates. Generally, for fetching
the best business loan interest rates in India a credit score above 700 is
considered to be a favorable one. Additionally, at the same time lenders also
check for the credit history of your business. This aids them in gauging the
repaying capability of the borrower. Therefore, having a sound credit history
helps in making the loan process smoother. The higher would be your credit
score lesser would be the interest rates charged.
Type Of Business
Sometimes
your choice of business can also affect the interest rates on your business
loans. This is because some businesses carry a higher risk as compared to
others. Depending upon the lender’s perception on the extent of risk involved
the interest rates charged on your business loan may differ.
Age Of Business
A
well-established business is likely to secure lesser interest rates as compared
to newer ones. This is because several lenders in India prefer providing credit
to small businesses that have gained the time tested experience in the field.
Therefore, if you have been involved in the same business for years then it is
a positive indication for the lending institution. You will be provided with
better loans terms and easier repayment options. Contrary to this, a new stage
startup or business with minimum experience would be charged higher interest
rates.
Business Plan
Not all
lending institutions ask for a business plan but if you have a newly
established venture then you might be required to present one. Your business
plan should be concise and impactful. It should clearly present all the
information about where the money is intended to be used and how. While, if
your plan is not effective and does not show any growth prospects then the
lending institution might approve your loan but may impose a higher interest
rate.
The Financial Health Of The Business
The
good financial health of a business is significantly important in determining
the business loan interest rate. A business with sound financials would be a
more viable candidate for a loan as it can be trusted of repayment without any
hassle. The lender would assess the fundamentals of your business through cash
flow statement, balance sheet, and profit & loss account. If your business
is profitable enough and involves lesser risk then you might be offered the
loan at a lower interest rate.
Collaterals
Collateral
refers to the monetary value holding asset owned by a business owner. While not
all borrowers are capable to offer collateral thus there comes the variation in
interest rates. However, nowadays a number of lending institutions offer
collateral-free business loans at a low-interest rate. Though these unsecured
loans do not require collateral but having sound business assets can help you
avail higher loan amounts at subsidized interest rates.
All of
these factors collectively form the basis on which your business loan interest
rate would be evaluated. Getting familiar with these factors will help you plan
accordingly for your specific business needs. Moreover, it will help you opt
for the best funding solution available.
Fortunately,
if all of these factors fall in your favor, you will assuredly be offered the
loan at a low-interest rate by most of the lenders.
Business Loan Interest Rates
We at
understand the needs of our customers. To accord them with the best lending
experience our analytics-based smart systems work to simplify the loan process
at every step. Our technology backed Business loan
interest rate calculator allows us to provide customized
interest rate to our customers, thus ensuring that every applicant is provided
with fair interest rates without any biasing. Our annual interest rate charges
starting from 12% stand out to be competitive in India. Moreover, our flexible
repayment options make us the one-stop solution for unsecured small business
loans.
