Business Loans in India: Types, Eligibility, & Required Documents
29 November 2024
Business loans are just like fuel for an engine in a business, without which even the very best might crawl. A Business Loan is primarily meant for budding entrepreneurs who wish to grow, expand, or manage the operations of their business, a startup or an established entity, or any other type of business- it helps finance working capital, purchase equipment, or support any other critical business need.
In this guide, we will explore the different types of business loans available in India, the required business loan documents, and the eligibility criteria you need to consider while applying for them.
Key Takeaways
- Diverse Loan Options for Business Needs: Business loans in India cater to various needs, including working capital, equipment purchases, and business expansion. Options like secured, unsecured, SME, MSME, and startup loans ensure that businesses of all sizes can find suitable financing.
- Documentation is Key: Lenders assess eligibility using detailed documentation such as identity proof, financial statements, and business registration. Accurate and organized paperwork improves the chances of swift approval.
- Importance of Creditworthiness: A good CIBIL score (typically 650-700) is crucial for most loans. For those with lower scores, secured loans or collateral-backed options may offer a viable alternative.
- Government-backed initiatives for MSMEs: Backed by government schemes, special loans for MSMEs provide favorable terms like lower interest rates and flexible repayment schedules, supporting small businesses in India's economic ecosystem.
- Customised Solutions for New Entrepreneurs: Startup and micro-business loans are designed to address the unique challenges of new and small-scale enterprises. These loans prioritize innovative business plans and growth potential over a long operational history.
Important Documents Required for Business Loans
Different types of businesses require different types of business loans. For this purpose, business loan documents are essential. Lenders require your specific documents to assess your eligibility and credibility. Before approving the loan, lenders often analyze the viability and future of the business.
Below is the list of the documents commonly required when you are applying for a business loan:
| Document | Requirements |
|---|---|
| Identity Proof | PAN Card, Aadhar Card, Passport, Voter ID |
| Business Proof | GST Registration, Business License, Trade License |
| CIBIL Score | Minimum 650 CIBIL Score for the majority of loans |
| Financial Statements | Balance Sheet & Profit & Loss Accounts statements of the past 3 years |
| Income Tax Return (ITR) | ITR filed of the business as well as the owner of the past 2-3 years |
| Bank Statements | Bank Statements of the business for the last 6-12 months (preferred) |
| Bank Statements | Bank Statements of the business for the last 6-12 months (preferred) |
| Collateral | Property or any other assets in case of secured loans |
Check your business loan eligibility criteria, such as how much funding you can receive, using the Ambit Finvest Business Loan Eligibility Calculator.
Major Business Loan Types Available in India
There are various types of business loans available depending on the nature of the business and the funding it needs. Below are some of the commonly used business loans in India.
Secured Business Loan
A Secured Business Loan is a loan that requires the borrower to provide collateral (assets like property, machinery, etc.) to the lender. The loan amount is usually higher, and the interest rate is lower than unsecured loans due to the reduced risk for the lender.
Eligibility Criteria & Documents Required for Secured Business Loans
- The borrower must have a minimum CIBIL score of 650-700.
- The business must be operational for at least 2-3 years.
- The business should have a steady cash flow.
- The borrower must provide collateral (property, assets).
Documents Required:
- Proof of identity and address of the business owner.
- Proof of business ownership and registration.
- Collateral documentation (e.g., property papers).
- Financial documents (balance sheets, profit and loss statements).
- Bank statements and ITR for the past 2-3 years.
Assets Needed for Secured Business Loan
Secured business loans generally require assets that can be used as collateral. These could include real estate properties, machinery, inventory, or other business assets.
Unsecured Business Loan
An Unsecured Business Loan does not require any collateral. The loan is granted based on the business's creditworthiness and the borrower's financial health. The terms, however, may be stricter, and interest rates may be higher.
Eligibility Criteria & Documents Required for Unsecured Business Loans
Eligibility Criteria:
- A minimum CIBIL score of 700.
- At least 2-3 years of business operations.
- Consistent cash flow and profitability.
Documents Required:
- Proof of identity and address.
- Business registration proof.
- Income tax returns for the last 2-3 years.
- Bank statements and financial statements.
Small Business Loans
Small business loans, especially for SMEs (Small and Medium Enterprises) and MSMEs (Micro, Small, and Medium Enterprises), play a vital role in supporting the Indian economy by fostering growth and innovation. These loans can help businesses manage daily operations, invest in technology, or expand their reach.
Eligibility & Documents Required
Eligibility:
- The business must be an SME/MSME as defined by the government
- A minimum CIBIL score of 650-700.
- A business operating for at least 2-3 years.
Documents:
- Identity proof, and business registration documents.
- Financial statements for the last 2-3 years.
- ITR and bank statements.
SME Business Loan
An SME Loan is designed for small and medium-sized enterprises. These loans provide the necessary capital for growth and innovation in various sectors. The government has also introduced various schemes to provide financial support to SMEs, aiming to boost the economic development of the country.
Eligibility Criteria & Documents Required for SME Loans
Eligibility Criteria:
- The business must qualify as an SME.
- CIBIL score of at least 650-700.
- Profitable business with at least 2-3 years of operations.
Documents Required:
- Identity proof, business registration.
- Financial statements, ITR, and bank statements for the past 2-3 years.
MSME Business Loan
The MSME Loan is a government-backed initiative that provides financial support to small businesses in India. These loans help businesses access working capital and expand their operations, with lower interest rates and easier repayment terms.
Eligibility & Documents Required for MSME Loans
Eligibility Criteria:
- The business must fall under the MSME category.
- A minimum CIBIL score of 685 or higher.
- At least 3 years of operation.
Documents Required:
- Business registration documents.
- Income proof, ITR, and bank statements for the last 2-3 years.
- Financial reports and other business-related documents.
Micro Business Loan
Micro Business Loans cater to the smallest of businesses, typically offering lower loan amounts. These loans are critical for small entrepreneurs or individuals looking to start a business with limited capital.
Purpose & Benefits:
Microloans offer financial relief for small-scale entrepreneurs, allowing them to start or grow their businesses. They are easier to qualify for and come with lower interest rates and more flexible terms.
Eligibility & Documents Required
Eligibility Criteria:
- Business must be operational for a minimum of 1-2 years.
- CIBIL score of at least 650.
- Basic business registration and proof of income.
Documents Required:
- Identity proof, business registration.
- Financial statements, ITR, and bank statements.
Other Business Loan Types and Major Document Requirements
Here's a Business Loan Document Checklist to help you understand the documentation needed for various types of loans:
| Loan Type | Required Documents |
|---|---|
| Working Capital Loan | Bank statements, financials, ITR, business proof |
| Term Loan | Business registration, financial statements, collateral |
| Startup Loan | Business plan, ITR, bank statements, proof of ownership |
| Equipment Loan | Equipment details, financial statements, collateral |
| Collateral-Free Loan | Strong financial statements, business registration details, and equipment information to evaluate the business's creditworthiness |
Tips for Preparing Business Loan Documents
Loan Document Preparation:
- Ensure your financial documents (balance sheets, ITR) are up-to-date and accurate.
- Maintain a good CIBIL score by paying off any existing loans.
- Include a clear business plan to demonstrate your business goals.
- Organize your documents to ensure you can submit everything at once, avoiding delays.
Final Take
To secure the right business loan, it's important to be aware of the specific Business Loan Summary and document requirements. Understanding the types of loans, eligibility criteria, and documentation will help streamline the application process and improve your chances of approval. Knowing how to choose the best business loanin India can make this process even smoother.
Frequently Asked Questions (FAQs)
Can I get a business loan if my company has been operational for less than a year?
Most lenders require at least 1-3 years of business history to qualify, especially for unsecured loans. However, some micro or startup loans are designed for newer businesses, though they may come with stricter terms or require a strong business plan.How can a business plan impact my loan application?
A well-crafted business plan can enhance your credibility with lenders, particularly for unsecured or startup loans. It should clearly outline revenue forecasts, business goals, and potential growth, demonstrating the viability and future cash flow of your business.What options do I have if I don't meet the minimum CIBIL score requirement?
If your CIBIL score is below the lender's minimum, consider secured loans where collateral reduces risk or work on improving your credit score by managing existing debts before reapplying.Are there specific loans available for women-owned businesses?
Yes, many banks and NBFCs offer loans with favorable terms for women entrepreneurs, such as lower interest rates or flexible repayment options. These schemes aim to support women in business and are often backed by government initiatives.What is the typical approval time for a business loan?
Approval times vary by loan type and lender; secured loans may take longer due to collateral verification, while small unsecured loans can be approved in as little as 2-3 days if all documentation is in order.| Recent Posts |
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| Secured Business Loan |
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Secured Business Loan in India |
Types of Secured Business Loan |
How to apply for Secured Business loan |
Eligibility Criteria for Secured Business Loan |
Document Required for Secured Business loan |
| Unsecured Business Loan |
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Unsecured Business Loan in India |
Types of Unsecured Business Loan |
How to apply for Unsecured Business loan |
Eligibility Criteria for Unsecured Business Loan |
Document Required for Unecured Business loan |
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