Business Loan in India - Conditions to be fulfilled

Although the business loan is most preferred for any businessmen however, not everybody becomes eligible to obtain a business loan in India.

In order to apply for a business loan from banks, it is advisable that businessmen do some homework and only then go for the same.

Following points should be kept in mind before any businessmen apply for a business loan.

  • In case of newly set up business, he should have a sound business idea and business plan while applying for a business loan.
  • The business plan should be able to generate enough profits in future so that businessmen can repay the loan without any hassle.
  • The business plan should have scalability.
  • The return on capital should be more than interest payable on loan borrowed, only then business would be able to survive and would be able to repay the business loan.
  • In the case of existing business, there should be business continuance of at least 3 to 5 years. Also, there should be documentary evidence to support business continuance.
  • An existing business should be profit making and should have a good valuation
  • In case project report is required by banker before sanctioning business loan, the same should be prepared in a professional manner containing all aspects of financial, qualitative, quantitative, forecasts and CMA data.
  • The project should be financially and legally viable and feasible.
  • Minimum age for availing business loan is 21 years and maximum age is 65 years.
  • Minimum 3 years copies of tax returns and audited financials should be available with the borrower.
  • In case of any agreements and contracts in hand, copies of such contracts should also be provided to banker which will enable them to evaluate the funding requirement.
  • In the case of self-employed professionals like Doctors, CAs, Engineers, Interior decorators, architects, etc seeking a business loan, they have to submit proof of their professional qualifications.
  • Self-employed nonprofessionals can also avail business loan subject to fulfillment of requirement of business continuance and financial worthiness for proving repaying capacity. These may be Partnership firms, LLPs, Private Limited Companies, Individual Traders and manufacturers etc
  • CIBIL report of the borrower should be OK otherwise no loans will be sanctioned even if all other conditions are fulfilled. Therefore, it is very important to ensure that there is no earlier default in repayment of any loans, credit card payments etc otherwise chances of getting business loan will be very less.
  • Different banks charge a different rate of interest on business loans. Further, the nominal processing fee is also charged.
  • Business loans can be both secured as well as unsecured loans. In case of unsecured loans, money is given only on the basis of evaluation of financial documents, CIBIL score and after making an analysis of repaying capacity of the borrower. However, in case of secured loans, besides evaluation of financial documents, proper legal and technical valuation of the property is also done to verify that property is legal, freehold, without any encumbrance and title of the property, belongs to the owner.

Thus, every businessman should keep aforesaid points in mind before applying for a business loan. This will facilitate in making the entire process smooth and hassle-free.

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Author: Anil Agrawal
EZYBIZ India Consulting LLP, New Delhi. The firm is business and tax consultancy firm providing consultancy in Taxation, Regulatory, Transfer pricing, Valuation, Corporate funding and Business set up matters. He may be reached at 9899217778 or anil@ezybizindia.in.
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