What Are the Documents Required to Get a Business Loan ?

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.