How to Get Business Loan

February 2, 2010 16 Comments

If you have dreams to start your business but just do not have the money, you can go for business loans in India. If you can sell your business plan to the banks and even meet the required criteria, then you are eligible to get loans. Apart from funding, banks also give a guarantee or issue letters of credit, on behalf of the customer, to government departments or suppliers for the procurement of goods and services on credit.

If your loan amount is too big and are turned down by a bank you need not feel disappointed. The amount of business loan sanctioned varies from bank to bank. Up to a certain limit you generally, do not have to provide any security. Beyond certain limits, you are required to provide a collateral security or a percentage of business loans as margin. This may be accepted in terms of fixed deposit with the bank.

Your business loan is similar to an overdraft. It is available like a limit on current account. In this case interest is charged only on the actual amount utilized, instead of the whole amount of loan.

Types of Business Loans:

Trade Loans
If you plan to start a business or trade you can get trade loans. You can take the loan to open a new business or expand an existing one. You can procure anything between Rs. 25000 to Rs. 25 lakh. Factors taken into consideration while sanctioning this loan, is the age of the applicant, his financial position, his ability to repay, tenure of the loan etc. The maximum duration for which the loan is given is 5 years and needs to be repaid through EMI or Equated Monthly Installments or.

The rate of interest depends upon the prime lending rate. The rate is also offered on a fixed or varying basis. If required you may need to furnish collateral security for the loan.

This may in the form of mortgage of land barring agricultural land and building. Other guarantees accepted include Government Bonds, National Savings Certificates, Assignment of Life Insurance Policies, Bank’s Term Deposits, approved Shares & Bonds in the name of borrower/partner/ proprietor /director.

This kind of business loan is given to Sole Proprietorships, Partnerships and Private Limited Companies.

Fast Business Loans
If required you can also procure fast business loans. If you have a proven record you may not require long credit verifications. To get the process completed all you need is little paperwork. However, further paperwork and credit checks are needed after the money is delivered in order to close the deal on better terms.
For fast loans you need some documents. These are applicable for both Sole Proprietorship / Partnership Firm. These include:

  • Proof of Identity (Copy of Sales Tax / Service Tax / VAT /Excise Registration Receipt OR Registration under Shops and Establishment Act OR PAN ID / IT Return of the Concern OR Electricity /Water / Municipal Tax Bill in the Name of the Concern OR MAPIN Card in the Name of the Concern)
  • Proof of Individual Identity (Voter’s Identity Card/ Copy of Passport / Driving License/ Photo PAN Card /MAPIN Card
  • Proof of Residence Address (Voter’s Identity Card /Copy of Passport/  /Ration Card/ Driving License /Life Insurance Policy/ /Telephone Bill/ Electricity Bill)
  • PAN Number/Form 60 of the Concern
  • Financial Documents (Copy of P & L Account and Balance Sheet for last two years, audited by a CA and Copies of IT returns for the last two years)
  • Bank Statements for last 6 months
  • Partnership Deed, in case of Partnership Firm)
  • Proof of Place of Business
  • Two passport size photographs

To get fast business loans you need to furnish the above documents. The process of getting the loan can be hastened if you have a recognized guarantor with the bank.

Quick Business Loans
For a Private Limited Company you need the following for quick business loans:

  • Proof of Identity same as above
  • Memorandum and Articles of Association (Copy of Certificate of Incorporation)
  • Proof of Individual Identity for the authorized signatories and 2 directors, including the managing director (Copy of Passport/Voter’s Identity Card/Photo PAN Card/Driving License/MAPIN Card)
  • Board Resolution like copy of Annual Return establishing the shareholding pattern
  • List of Directors
  • PAN Card / Form 60 of the Concern
  • Copy of Form 32 filed with ROC
  • Financial Documents (Copy of P & L and Balance Sheet for last two years, audited by a CA, and Copies of IT returns for the last two years)
  • Proof of Place of Business
  • Bank Statements for last 6 months
  • Two passport size photographs

Banks Providing Business Loans in India
All nationalized and private banks provide business loans to traders. To get loans from the state banks is quite tedious and cumbersome. However private banks provide loans with less hassle.

16 Comments »

  • shubha said:

    Respected Sir, We already have five year old trading company in partnership. Now we are planning to expand our business. But for this we need some loan. Can you please me how to get loan from bank? and What documents we need to present to the bank for getting loan. Please contact me.

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  • Scott Wilson said:

    So, first of all, thank you for asking a question. And to get loan is not that though job, so don’t worry. As far as documents are concerned, it depends on the bank.
    The most important document is your planned project(well furnished and written). And you also have to do SWOT ANALYSIS of that project. and cost benefit analysis is also required. so first be prepared for these document. the banks are most interested in these docs.

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  • Ali Raza said:

    Dear Sir,

    This is ali raza working as Dy. Proj manager in ansal.
    now planning to start Computer showroom with Cyber cafe and small training institute.
    for above , i need fiancial help from bank or financial institution.
    but i want loan against the business which i shall start.
    need your valuable advice.

    Regards
    Ali

    Reply This Comment

    Scott Wilson Reply:

    Mr. Ali,
    You are a project manager so you must be knowing the project reports for loans and proposals. So there is a page on this website. The title of the page is our services and project reports. You can visit that and set your plan.
    Thank you.

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  • Aditya said:

    dear sir,
    i am a student studying in germany.i would like to start a car dealer showroom with a partner in delhi.most of the blogs says we need 2 years of experience in the business?
    can you please tell me whether i will be able to get a huge loan(rs-100,00,000)within a month for my new business.i am ready to give the showroom papers as security.will i have to give any margin?
    Aditya,

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    Scott Wilson Reply:

    Mr. Aditya,
    In every field it is important to gain some experience and then start the business. If you have some experience, you will not have to wonder so much and find the work experince. If you have experience, you may be in a better position to select the suplier, consumer policy, procesor, transporter etc.
    It is difficult for you to get this much of amount as a loan. As far as margin is concernrd, they will definitely ask for more that 20% as the margin.
    It is difficult but not impossible to get the loan so don’t lose the hope and gain some experience and then prepare a project report to get the loan.
    Thank you.

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  • B K said:

    Hello Sir,

    I am currently director of one company and partner in two companies. My core area of working is in the field of laser technology for cutting, marking ,engraving on metals, non metals and diamonds,

    I am planning to start a new venture where I am looking forward to build the laser systems, trade the systems and use the systems for job shop.

    I would like to know can I get the loan from bank or institution if I form an new company where I will be partner or director?

    My requirement will be in steps and total would vary from 2cr to 8cr in a year.

    Please do give your valuable suggestion.

    Reply This Comment

  • S T said:

    Dear sir

    I am a student studying MBA. I would like to start a business. I am planning to open a mobile store. so far I do not have any experience or income tax return but I have other documents like pan card,ration card. So can I get a trade loan and if so how much?

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  • A D said:

    Hello, I am a mechanical engineer. Currently working with a well known company. I would like to start building materials shop business in TX. and I need a loan to start this business. What are the bank formalities and procedures to get a loan?
    Please explain in detail…

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  • AJ said:

    hi,
    Scott

    I would like to know from were i will get loan for milk production business. As, bank always ask for security, but if we have security amt. we would have started the business with that amt. I don’t understand why they ask for these. Than what is the meaning of loan. Plz advice me as i have 2 lacs but i need another 2 lacs to start my business. I have read in many newspapers that govt. Has sanction 1000 ‘s of crores of rupees for agriculture field but when we apply for loan in the bank they don’t take interest in us. Why i say why. We are also very much educated and capable of running these business. But govt doesn’t support us.

    Reply This Comment

    Scott Wilson Reply:

    Mr. AJ,
    If you ask for a loan, they will ask for securities for sure. I can understand what is your problem and it is very important what you are saying. You can do one thing,
    If you will start this business, you will need some shop or some kind of asset. You can place this asset as the security and start your business.
    You can invest your own money in working capital and the assets you want to buy, that can be bought on loan and the assets will be on the name of the bank. You can use these assets and your security requirements will be satisfied.
    Better you consult some professional or take advise from some experienced person face to face there so you can get better idea.
    You can ask more questions if you are not happy with the answer.
    We are always here to guide you. Please don’t lose your hope and you can get a loan for sure, 2 lakh is not a big deal for a bank and they will help you.
    Thank you.

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  • CH said:

    Dear Mr Wilson,
    Me and my husband is running a Job Placement Consultancy from that last 4 months now. This is a kind of business where we have to be patient to get money after 90 days from the day candidate joined. What so ever money we had we have already pooled in now we don’t have any money at this situation to pay the rent and salary. However I am expecting a big amount of money in the month of March & I have one month to survive without money. I asked my husband to take Business loan as we have all the things which are needed legally to apply for a loan. The problem is that the place in rented and we don’t think any bank will give us loan on rented property. If you can please help us with the Bank name and things needed that would be a great help for us.
    thanking you
    Regards

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  • NP said:

    Respected sir,
    I am pursuing B.com final year with marketing as subject and field of interest and I am very keen to start my own business by establishing a car showroom, though I am not financially sound neither have big business background, nor properties. but that doesn’t mean I can’t have one. My request to you is please guide me how to get a loan for rs 3-5 crore. To setup business of my own except showing me the way to my studies , I will do that to but I find my self attached to the cars very close and really keen to open a showroom of my own I have a great strategy for big profits.
    Thank you.

    Reply This Comment

  • YG said:

    Respected sir…

    I am a science student, have done my graduation and post graduation in chemistry. Post graduation was done to distance education. I am working in a pharmaceutical company in a quality control department. I want to start something of my own. a business of my own. I don’t know what to do, what type of business, how to start. actually i m a gold smith by tradition. please guide me sir.
    I have had enough of this job business. Can you help me out sir.

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  • vjay said:

    Dear Sir, I am a Japanese and would like to start an import-export business in India.I have an Indian friend to look after my business in India. Should I start a partnership firm or a proprietorship firm,if proprietorship then on whose name? Please tell me the formalities required.
    Regards

    Reply This Comment

  • dilpesh said:

    Hello Sir,
    I am a Computer engineer and presently I am working as a web developer in one small firm where I am been paid in cash so don’t have any salary slip and may present age is 23 years and experience in relevant field is 1 year same thing with one of my friend and we both want to start computer classes in partnership but we don’t have a good financial conditions at present so we need a business loan for that so will you help me out to get the business loan and what documents should I have to make prepared and which banks are going to provide this loans in India ?? Please help me sir I am very eager to start my business.

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