All businesses irrespective of size and nature need finance at different stages to execute expansion and developmental needs. The easiest way to finance any such immediate need is the ‘banks’. Different banks provide business loans to business houses to cater to their various needs. Apart from the businesses, self employed professionals, firms and corporate form the major chunk of business loan borrowers from the banks. The quantum and interest of loan may be vary from bank to bank. Generally, no security is required for business credit up to a certain limit. Above that limit, there is requirement of a collateral security or a percentage of business loans as margin, in the form of fixed deposit in the bank. Business loans are similar to an overdraft and are available like a limit on current account.
Types of Business Loans
Generally the business loans are categorized into two broad categories:
- Professional Loans
- Trade Loans
Leading Banks offer Professional loans to self employed professionals like Doctor, Chartered Accountant, Interior Decorator, Architect, Company Secretary, etc for the purpose of purchasing equipment, repairing or renovating existing equipment and/or for working capital requirements or clearing up the existing high cost debt from other banks. Professional loans are unsecured in nature and will not be given to manufacturing, trading or industrial units. The quantum of loan varies from Rs.25,000/- to Rs.25 lakhs depending up on the age of the applicant, financial backgrounds, repayment capacity, tenure of the loan (maximum 5 years), etc. The interest rate is calculated on diminishing balance, the fixed or fluctuating basis. The repayment is made through EMI and in some cases, a collateral security has to be provided for limits above Rs.25,000/-.
Documents Needed for Professional Loan
- Loan holder should submit his Proof of Identity i.e.; Copy of his Passport or Voters ID Card or Driving License.
- He also needs to submit his Ration Card or Telephone bill or Electricity Bill or his Passport for the Address Proof.
- Latest 6 months Bank Statement or Bank Passbook.
- Latest Income Tax Return, along with computation of income.
- Balance Sheet and Profit & Loss Account for the last 2 yrs, certified by a Chartered Accountant.
- Qualification Proof of the Highest Professional Degree.
- Trade license /Establishment /Sales Tax Certificate for the Proof of Continuation of his profession.
- Other Mandatory Documents: In case of Sole Proprietorship; its Declaration, In a Partnership; its Copy of Partnership Deed.
- Two passport size photographs are also to be submit.
Present day trading involves heavy initial investment and pooling in continuous financial resources. Banks are providing trade loans to traders / businessmen to help them set up or expand their business. The minimum loan offered by banks is Rs.25000,it can be extended up to a maximum of Rs. 100 lakhs. The amount of loan also depends on the age of the applicant, his financial standing, his ability to repay the loan and the tenure of loan. Trade loans is repayable in maximum 5 years through Equated Monthly Installments or EMI. Interest is fixed on the basis of prime lending rate. Rate of interest can vary in different banks due to the policies, it can be on fixed or floating rate.
Documents Needed for Trade Loan
- Proof of business existence for at least two years.
- Financial Statements including Balance Sheet and P/L statement for the last three years
- Proof of residence
- Proof of place of business.
Security for obtaining Trade Loans:
- Some banks require the borrower to furnish collateral security in the form of mortgage of land (not agricultural land) and building.
- National Savings Certificates, Government Bonds, Bank's Term Deposits, Assignment of Life Insurance Policies, approved shares & bonds standing in the name of the borrower/proprietor/partner/director only, are also acceptable as security.
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List Of Banks In India Providing Business Loans