To avail a business loan from a lender, you will need to check if you meet the eligibility criteria listed by the lender. Listed below are the general eligibility criteria to avail business loans:

The loan can be availed by self-employed professionals, self-employed non-professionals, and entities.

Self-employed professionals usually include doctors, chartered accountants, company secretaries, architects, etc. This is subject to the applicants who have proof of qualifications and also are practicing their profession.

Self-employed non-professionals include traders, manufacturers, etc.

Entities include partnerships, limited liability partnerships, private limited companies, closely held limited companies, etc.

The business may be required to have a minimum turnover of Rs.40 lakh

Minimum of 3 years’ experience in the current business is required.

Minimum 3 years of total business experience is required.

The business should be making a profit for the last 1 years.

Minimum Annual Income (ITR) of Rs.1.5 lakh per annum is required.

Applicants should be between the ages of 24 years and 57 years.

The IT returns for the last 1 year should have been filed.

Lenders may offer business loans to only certain cities and towns.

There are multiple reasons for applying for a business loan. However, you should opt for this scheme only when:

You have a strong business plan

You foresee a decent cash flow in the future through the business

The capital return of your business is greater than the interest of the loan

Loans to start a new business

If an entrepreneur has a business idea that he or she wants to turn into an endeavour with potential income, a business loan can be availed in such a scenario to meet his or her financial needs. However, in order to ensure your loan gets approved, you should make sure that your idea is good enough to generate substantial profits in order to repay the loan interest. You should also make sure that the overhead cost of the business is not high enough to cause a negative impact on the business and its profitability.

Loan for business expansion

Opting for a business loan is a great way to arrange for the funds required during the expansion of an organisation. Business expansion can include starting a new department, launch of a new product, upgrading an operation or product, venturing a new area or market, etc. Additionally, the chances of loan approval for an existing business are usually high owing to the fact that it holds a proven track record.

Loan to purchase machinery and equipment

When dealing with a high-demand product, it is essential for the business to maintain a regular supply to the market. In order to do this, the organisation might have to increase production by investing in equipment and machinery with the latest technology. Furthermore, a company might also need to buy equipment during an expansion. Business loans are a great way to meet credit needs during such a situation.

Loan to manage cash flow within the organisation

It is difficult for small companies to ensure there is a healthy amount of cash flow within the organisation. Therefore, a business might face a shortage of money to fulfil its liquidity requirements for a working capital such as utility bills, overhead salary, inventory management, rent, etc. However, this problem can be solved if a business owner opts for a loan to meet the company’s temporary financial crisis.

Loans for Working Capital

When the cash flow is low within an organisation due to reasons such as market boom and increase in operating cycles, it is difficult to manage regular expenses such as salaries, supplies, and raw materials. In order to keep the business running and to recover from such a financial crisis, an entrepreneur might decide to avail a business loan and keep the business operational.

Loan to turn business losses into profits

A business loan can also be availed to receive the funds required in order to make a business that has been incurring losses profitable. Even though many lenders are sceptical when funding a less successful/unsuccessful business, corporate applicants with a practical plan that includes major changes in business operations or introduction of a new product might convince them to do so.

Loans to repay previous debts / Debt Consolidation

It is always a smart move to repay multiple small debts using a large loan in order to avoid paying a huge amount of money as interest. A businessman can also choose to do the same by availing a business loan.

While running a seasonal business

If you are operating a business that is in demand only during a certain time of the year then it might be difficult for you to manage the expenses when the orders start rushing in. In that case, you can secure a short-term business loan to offer undisrupted service to your customers and can repay the loan using the profit earned after the peak season is over.

A few types of business loans are as follows:

Overdraft facility

In an overdraft facility, the business owner can withdraw a larger sum than the amount present in the account as a loan to meet his or her business needs. The maximum amount that can be withdrawn and the interest rate under this facility is based on a mutual agreement between the lender and borrower.

Term loans

In case of a term loan, a borrower can avail a secured or unsecured loan to receive the funds according to the situation and requirement of the business. These loans are helpful in acquiring long-term assets. There are three types of term loans based on tenure namely short-term loan, long-term loan, and intermediate loan that can be repaid on a monthly or quarterly basis. While the rate of interest for such loans can be fixed or floating, it varies according to the loan  repayment tenure.  

Demand loans

When an entrepreneur withdraws a demand loan to meet the financial requirements of his or her business, the amount has to be repaid whenever the bank or non-banking financing company (NBFC) recalls it. Demand loans can be both secured and unsecured and are ideal to meet a short-term financial crisis. While the maximum term for this type of a business loan can be 12 months, the merchant can choose to renew it when the term has ended.