The business loan meaning is a loan product offered to business owners who have a running company but require external funds for operations. The investment cover expenses such as employee salaries, rent, buying equipment, or expanding the business in other cities.
Business finances may seem very tricky at times, especially in today's competitive environment. As a business entrepreneur, you may wonder about the best possible option to fund your various business needs including purchasing assets such as land, leasing a shop or factory, purchasing new machinery, working capital requirements, or basic operations expenses such as overheads and salaries. However, Business Loans can be broadly divided into 2 types, which are explained below.
Secured business loans are a popular source of capital for small firms. A personal guarantee or the pledge of assets or property as security is used to secure this sort of loan. The use of the collateral is thought to be a means by which you can reassure the lender that you will return the loan within the time frame laid forth in the loan agreement. Implicitly, it also suggests that in case you couldn’t repay the loan amount on time, the lender has all the rights to seize the collateral. There are two types of Secured Business Loans that are “Secured by Collateral” and “Secured by Personal Guarantee”.
This type of secured business loan includes pledging a Property Mortgage, Government Securities, Savings Account, Fixed Deposit Certificates, Gold and other precious metals.
Secured Loans are also provided on the basis of the guarantee. You can use your or your partner's possessions, such as gold, real estate, or other assets as collateral in this situation.
An Unsecured Business Loan is based purely on your business creditworthiness rather than collateral or guarantees. It determines your income, financial papers, and other relevant factors. Unsecured loans are beneficial to your business for various purposes that include business expansion, equipment purchases, inventory management, and many more.
The business loan details require fulfilling the set eligibility criteria, including the following.
Established enterprises operating for more than six months at the time of application.
Minimum turnover of Rs 90,000 in the last three months from the time of application.
The business does not fall under any category or list of blacklisted/excluded businesses.
The office/business location is not on the negative location list.
Charitable organisations, NGOs, and trusts are not eligible for a business loan.
Here are the documents Proprietorships, Partnerships, and Pvt. Ltd/ LLP /One Person Companies will need to submit to complete the application for a business loan:
1. KYC documents – Identity proof and address proof of the borrower and all co-borrowers ( PAN Card and Aadhar Card or others address proof )
Last (6-12 Months) months' bank statement of the main operative business account.
Proof of business registration (GST/MSME/FSSAI OR Other company Registration certificate.)
Deed copy and company PAN Card copy in the case of Partnerships, Pvt. Ltd/ LLP Company.