How to Get a Business Loan

All organizations, big or small, need funds to start, scale and sustain. Depending on their growth stage, companies can choose different types of loans. They can remit the loans through profits. In the following sections, we have listed in detail the different types of loans you can apply for as a business, the process of securing them, and details about interest rates.

Common Types of Business Loans

In India, there are 8 broad categories of business loans:

Type of Loans Particulars Interest Rate
Startup loan These loans are exclusively for startup enterprises. Many banks are establishing dedicated startup branches that solely cater to the needs of startup banking and funding requirements. 15%-20% p.a.
Working capital loan Businesses use this loan to meet their working capital needs and run daily operations. This primarily includes Cash Credit loans. 12%-18% p.a.
Term loan It can either be secured or unsecured. It has a fixed tenure of repayment ranging from 12 months to 5 years. 10%-15% p.a.
Letter of credit It is issued by a bank to a trading company that guarantees payments to companies involved in international trade. 10%-15% p.a.
Invoice discounting This helps to bridge the time gap between the raising of invoices and the receipt of payment by the supplier. The lender usually provides money to the borrower after deducting a certain amount known as a discount. 12%-18% p.a.
Overdrafts These allow borrowers to withdraw money from their accounts over and above their remaining balance. 10%-15% p.a.
Machinery loan As the name suggests, it is used to purchase new machinery or equipment whereby the machine serves as a security to the lender. 8%-15% p.a.
Mudra loan Mudra loan is distributed under the Pradhan Mantri Mudra Yojana. It provides funding to new or existing businesses without any collateral or third-party security. 8%-12% p.a.

Process of Securing a Business Loan

Broadly, there are 5 crucial steps to follow for applying for a business loan.

Step 1: Determine the Purpose of the Loan

Firstly, you need to determine the purpose for which you need the business loan. It could be for purchasing the machine, meeting working capital requirements, international trade, etc.

Step 2: Check the Eligibility of the Borrower

You need to determine your eligibility as a borrower as per the loan required. To check the eligibility, you need to go through your income proof, CIBIL score, banking, etc. Each bank has its own eligibility criteria.

Step 3: Prepare the Loan File

Once you confirm your eligibility for the loan, gather all your necessary documents. It includes KYC, income proofs (ITR and GST Returns), quotations from the supplier (in case of machine loans), bank statements, audit reports, sales orders, invoices, etc.

If you go with new-age lenders like Niyogin, you don’t need to prepare a loan file and submit physical documents. You can just upload the documents on the portal and go ahead with the loan process. This is the power of FinTechs – they are revolutionising finance.

Step 4: Present the Loan File to the Most Suitable Lender

You need to present your loan file to the most suitable lender. The ideal lender will offer the most flexible terms and have easy eligibility criteria and the lowest interest rate. You might have to make some efforts before you find a suitable lender.

Step 5: Coordinate any Queries with the Lender

The lender may raise certain queries before sanctioning and disbursing the loan for your business. It is important to coordinate with the lender and sort out any possible queries. This is to ensure quick sanction and disbursal of the loan.

In a Nutshell

Thanks to fintech innovations and ease of doing business, securing a business loan is much easier and smoother today in India. Fintechs are revolutionising the way credit flows in business and have increased access to credit facilities for all sections of society.

Niyogin offers business loans at competitive rates regardless of whether you are situated in urban or rural India. We at Niyogin provide a one-stop solution for all your financial needs be it loans, insurance, domestic money transfer, cash access, or micro ATMs. Further, we are partnering with local vendors and small businesses to help provide financial services to their customers. Visit our website now for more information.

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