Business Loan

BUSINESS LOAN

Business Loan:

Businesses require an adequate amount of capital to fund startup expenses or pay for expansions.

As such, companies take out business loans to gain the financial assistance they need.

A business loan is debt that the company is obligated to repay according to the loan’s terms and conditions.

According to the Us, Small Business Administration, before approaching a lender for a loan, it is imperative for the business owners to understand how loans work and what the lender will want to see from the owner.

The following documents are required along with your Business Loan application:

PAN Card – For Company/Firm/Individual
A copy of any of the following documents as identity proof:

Aadhaar Card.
Passport.
Voter's ID Card.
PAN Card.
Driving License.

A copy of any of the following documents as address proof:

Aadhaar Card.
Passport
Voter's ID Card.
Driving License.
Bank statement of the previous 1 year current And Saving.
Latest ITR along with computation of income, Balance Sheet and Profit & Loss account for the previous 2 years, after being CA Certified/Audited.
Proof of continuation (ITR/Trade license/Establishment/Sales Tax Certificate).
Other Mandatory Documents [Sole Prop. Declaration Or Certified Copy of Partnership Deed, Certified true copy of Memorandum & Articles of Association (certified by Director) & Board resolution (Original).

Types of Business Loans

1. Secured Loans for Businesses
These loans are those which are taken against some type of personal guarantee or any valuable asset as collateral.

Inventory loans, equipment loans, term loans and loan against property are secured business loans.
2. Unsecured Loans For Businesses
In many situations, businessmen and self employed prefer to take unsecured business finance with no collateral requirement because of the following reasons:

Short turnaround time of 5 -15 days as compared to secured loans

No collateral or security required to get this loan

Reduces your dependence on friends, relatives or money lenders for borrowing for urgent or seasonal business expenses

Function:

A business loan is borrowed capital that companies apply toward expenses that they are unable to pay for themselves. Some business owners use business loans to pay for salaries and wages until their new company gets off the ground, while other companies put borrowed funds toward office supplies, inventory or business projects.

Lenders want to know how the business intends to use the borrowed monies,so business owners must make sure to have a clear outline for how the money will be spent.

According to an October 2010 article by David Bangs in Entrepreneur.com, it is important to impress the lenders by being professional, or they may decline the loan application.

Types:

Businesses have a variety of loan options to choose from.

Traditional bank loans are the most popular source of funding, however securing a loan from a bank is no easy task.

According to a March 2010 article in Entrepreneur.com by Karin Price Mueller, banks are tightening their lending policies due to the economic downfall, making it more challenging for businesses to receive financial assistance from commercial loans. Aside from commercial loan options, businesses can apply for home equity lines of credit if one or more of the company owners are homeowners.

Features:

Loans are not given out for free.
Lenders charge interest on loans as the price paid for borrowing the money.

It is important to know whether the interest is fixed or variable. A fixed interest rate means that the interest rate remains the same for the duration of the loan and its payback period. A variable interest rate indicates that the interest rate can fluctuate based on a variety of determinants.
Other features of a loan to pay attention to are the payback period (months or years) and what the lender will use as collateral if the business is unable to pay the loan back timely.

Significance:

Business loans allow companies to have a chance at success.

As such, loans are in high demand, but not every company that applies for a loan will receive one. When applying for a business loan, lenders evaluate the company’s history, the amount of debt the company has and whether the business seems risky. Risky businesses, such as startup companies, are often not the winning recipients of traditional loans.

Considerations:

Businesses that take out loans with high interest rates should make plans to pay the loan back as quickly as possible, so the interest owed does not accrue into an exorbitant amount.

High-interest loans are best used for short-term financing needs.