Today we are discussing Best Bank For Business Loan. One can take a business loan to start a new project, expand the current business or buy new equipment for office space and assets. With the current state of business financing, it can be harder than usual to get a business loan but, not impossible. Few lenders still seem to be going strong, and some of them let you use your loan for business reasons.
The need for a business loan is increasing day by day. Every business having small funding goes for business loans only. If you are also willing to take a business loan then you can compare the best bank for a business loan in India. Some private banks grant business loans at a low rate of interest and other features. So, in this article, we will discuss some of the best banks for business loan purposes, their features, and eligibility criteria along with some tips on how to improve your chances of getting the loan and how to select the perfect bank that suits you.
Types of business loans
These loans are taken against some type of personal guarantee or any valuable asset as collateral. Some secured loans are inventory loans, equipment loans, term loans, and loans against property.
In some situations, businessmen or self-employed persons prefer unsecured loans for their business needs.
Unsecured business loans require no collateral and the reasons to prefer this type of loan are,
I. Short turnaround time of 5-15 days as compared to secured loans.
II. No collateral or security is required to avail of the loan.
III. Reduces the dependence on money lenders for borrowing urgent business expenses.
Banks use multiple factors to calculate the loan amount eligibility of the borrower. These factors are,
Banks consider the age of borrowers between 21-65 years.
Income Tax Returns(ITR)
A self-employed or businessman can avail loan if all the ITRs are filled regularly for the past few years (generally past 2 years). Banks calculate the income and repayment capacity of the borrower in this process.
It is an important factor for banks to consider whether to provide the loan or not to the borrower. A consistent growth shows the stability of the business, so the bank can judge, that the business is capable to generate profits and repay the loan. In general, 3 years for self-employed and 5 years for businessmen with 10-15% growth in sales are considered eligible.
Banks or financial institutions check a minimum of the last 6 months’ operational bank statements of the borrower. It shows the transactions and the amount of balance the borrower always maintains. The banks will also check outbound and inbound cheques to track the credit card record.
Business Loan details and basic requirements
- Eligible entities – Self employed non professionals(sole proprietors, partnership firms, private limited companies, public limited companies involved in manufacturing, trading and services). Self employed professionals (doctors, CA, CS, architects).
- Loan amount – Rs. 50,000 – Rs. 100 Crores.
- Rate of interest – 14% – 24%.
- Tenure – upto 5 years.
- Annual turnover – Rs. 1 Crore or above.
- CIBIL score – 650 or above.
- Other conditions – borrower should have self owned house or work place.
Compare the loan rates and other charges
The Interest rate of the business loan depends on the borrower’s business, the loan amount applied for, and past relationship with the bank. Currently, the interest rate starts at 14%.
Most banks charge a minimum of 2%-3% of processing fees on loans. So, before taking a loan always keep this in check.
As for unsecured loans, it is advisable to take an insurance policy such as life or accidental insurance by the borrower’s name at the time of availing the loan. Most banks provide insurance coverage to the owner of the company to protect financial risks in any case of emergencies. But, these premium varies bank to bank depending on the risk coverage under various policies and loan amount borrowed by the applicant. So, it is very important to check the bank terms, coverage, and premium. Also, check other banks and insurance companies to avail better insurance for the same amount.
Repayment and Foreclosure
No one wants to keep paying the interest on a loan when surplus money is available to repay it. If the repayment is done partially before time, then it’s known as part repayment. In case if the borrower does pay the entire loan amount before time, then it’s called foreclosure. In general, banks levy prepayment or foreclosure charges upto 5% in such scenarios. But, need to keep in mind that is the low-interest rate of the loan comes with high prepayment or foreclosure charges. Even, some loans can not be repaid before time.
Best banks to offer business loans
There are many aspects that you have to monitor before applying for the loan like the rate of interest, tenure, and many others. Here are some renowned banks that provide hassle-free business loans.
HDFC Bank Business Loan
1. Avail loan up to Rs. 40 Lacs without collateral or any guarantor(Rs. 50 Lacs for some selected locations).
2. An overdraft facility from Rs. 5 Lacs to Rs. 15 Lacs.
3. Provides a repayment period of 12 months to 48 months.
4. SMS Chat and phone banking facilities are also available.
5. Interest Rate Range falls between 12.75% to 21.70% per annum.
1. Grants loan only to individuals, Proprietors, and Private Ltd companies.
2. The business must be of Manufacturing, Trading, or Services.
3. A minimum of Rs. 40 Lacs of turnover is necessary.
4. The business vintage period must be not less than 3 years.
5. The minimum age of the applicant must be 21 years and a maximum of 65 years.
Fees and charges
1. The processing fee charged is 2.50% on the loan amount with a minimum amount of Rs. 2359/- to a maximum of Rs. 88500/-.
2. Prepayment charges of 4% when the loan is closed between 7 months to 24 months.
3. Prepayment charges of 3% when the loan is closed between 25 months to 36 months.
4. 2% is charged as prepayment charges when the loan is closed after 36 months.
5. 2% per month is charged if the EMI is overdue.
6. Rs. 550 is charged when a check is bounced.
Axis Bank Business Loan
1. Get a loan of Rs. 50 Lacs from Axis Bank.
2. There is no need for collateral to be mortgaged.
3. It provides a maximum tenure of 36 months.
4. The rate of interest depends upon the business financial assessment and past track records.
5. Timely disbursement of the loan amount.
6. An online facility is available for applying for a loan.
1. The business must have a vintage period of at least 3 years.
2. The turnover of the business must be between Rs. 30 Lacs to Rs. 10 crores.
3. An applicant’s age must be 21 years to 65 years old.
4. The business must be a partnership, proprietorship, LLP, Pvt Ltd, Company business.
Fees and charges
1. Axis Bank charges a processing fee of 1.25% to 1.50%.
2. Rs. 500 as cheque bounce charges.
3. A penal interest rate of 2% on the existing rate of interest.
ICICI Bank Business Loan
1. Get an overdraft facility under this scheme.
2. There is no need for a guarantor, collateral, or security.
3. Get a loan up to Rs. 2 Crore.
4. Fast loan processing and disbursement.
5. The interest rate falls between 16% to 22% p.a.
1. Partnership Firm.
2. Sole Proprietorship.
3. Private Limited Companies.
4. Micro and Small Enterprises.
5. Public Limited Companies.
Fees and charges
1. A processing fee of up to 2% on the loan amount.
2. Guarantee fee of 0.75% to 0.85% for women enterprises in the North Eastern Region and 15 for others.
3. No Charges for foreclosure of the loan.
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Kotak Bank Business Loan
1. Get a loan starting from Rs. 3 Lacs to Rs. 75 Lacs.
2. Grants business loan without collateral.
3. If the applicant submits all the documents then the bank approves a business loan within 72 hours.
4. The repayment tenure is 48 months.
5. Charges 18% to 23% per annum rate of interest.
6. Minimum paperwork and takes low processing time.
1. The business vintage period must be 3 years.
2. The minimum turnover of the business must be Rs. 40 Lacs.
3. A business must be in profit for at least 1 year.
4. The business must be either of manufacturing, trading, or a service provider.
5. Grants loans to the proprietor, partnership firm, a private company, trust, and LLP only.
6. The applicant’s age must be from 25 years to 65 years.
Fees and charges
1. Charges a processing fee of 2% plus GST on the loan amount.
2. Documentation charges of Rs. 3500 plus GST when the loan is less than Rs. 10 Lacs.
3. Documentation charges of Rs. 6000 plus GST when the loan is greater than Rs. 10 Lacs.
4. Cheque dishonor charges are Rs. 750.
IDFC First Bank Business Loan
1. Avail a business loan from Rs. 1 Lacs to Rs. 9 Lacs.
2. The repayment period of the business loan is 4 years.
3. No need for any collateral security.
4. Comprehensive loan insurance on the sanctioned amount.
5. The range of the rate of interest is 16% to 24% per annum.
6. Doorstep pickup of all the necessary documents.
1. Self Employed Professionals.
2. Sole Proprietorship Firm.
3. Partnership Firm.
4. Private Limited Companies.
5. MBBS, BDS, and MOS doctors.
Fees and charges
1. A processing fee of 2.49% on the loan amount.
2. Foreclosure fee of 5% on the remaining principal amount.
Mandatory documents required
I. ID proof – Pan card, Aadhaar Card, Voter I.D, Passport, Driving License (Anyone).
II. Residential address proof – Rent Agreement, Phone Bills, Electricity Bill, Passport, Driving License, Aadhaar Card.
III. Business continuity proof – Bank Statement, ITR Statement, Balance Sheet, Registration Certificate, Rent Agreement.
IV. All the documents of the existing loan (if any).
V. Last 3 years ITR(self/business), profit and loss account, balance sheet audited financial records by a qualified chartered accountant.
VI. Certificate and license of the organization.
VII. Passport size photograph of the applicant and co-applicant.
How to improve chances for getting a business loan
In the case of unsecured loans, each bank has its own set of policies. If the requirements are fulfilled by the borrower, then the bank rejects the loan application. So, keep some points in mind to get better chances of loan approval.
It is a very important factor that shows your punctuality and timely repayment capacity. Defaulting and late payment of credit cards both have negative effects on credit scores. So, identify the factors which resulted and rectify them. Always maintain a healthy payment record and ensure to maintain adequate balance in the bank account to make ECS transactions.
No multiple loan application
Sometimes, borrowers do apply in multiple banks to improve the chances of getting a loan. But, banks are getting too cautious. It is less likely to get loan approval from a bank if rejected by some other bank previously because each inquiry gets recorded in the credit report.
Choose bank wisely
Before applying, select the bank you want to apply for a business loan. Consider factors like low interest rates, low foreclosure charges, and fast service.
In general, banks prefer businesses that are in existence for over 3 years and making a profit. If you have a start-up business or running with less profit, then you should consider secured business loans.
Always choose a loan amount that you could able to repay with ease in the future. If you apply for a loan amount higher than your eligibility then doubts will occur at the lender’s end. Which could end up as a rejection of a loan application.
If businesses need to borrow frequently from banks, then borrowers should always access their credit score reports and do corrections on regular basis.
1. Improve and manage credit score above 750.
2. Maintain financial stability along with good loan repayment history.
3. Apply for a long-term business loan instead of a short-term one.
4. Do not close your old bank account or deactivate old credit cards.
At some point in your life, you must have come across the dilemma of whether to have a business of your own or to continue that regular 8 hours shift job. Well, most of the individuals who have big aspirations in their lives, all need is financial support. A bank loan is surely a blessing for those aspirants.
We hope the above-discussed banks for business loans will be helpful. However, always keep in mind that there is a difference between taking a loan for a new startup and for expanding an exciting one, loans have to be returned and with interest. So, it is important to make sure that borrowed funds are used wisely which shouldn’t become a problem. In the end, it all depends on you how you use the facility.
Despite all the information available online, it is always advisable to visit the nearest branch office of your preferred bank and discuss with the bank representative. The discussion may clear all the doubts or any hidden terms you need to know before applying for a loan. Visiting the branch is also important because sometimes banks introduce new schemes or changes in processing fees and interest rates that are not updated yet.