Business Loan : Complete guide for Applying business loans from Banks

Each business venture is unique in and of itself, and, hence, possesses quite a few specific requisites. People who cannot afford a big amount of money to start a business or invest on any other venture by themselves mostly search for a loan from a financial institution like the bank that tend to charge the least amount with respect to the rates of interest. Business loan plans offered by various banks and financial institutions across the country are customizable and customer satisfaction centric to offer business owners with a wide array of financing alternatives.

A small business loan is the safest and easiest option to appropriately finance business objectives. Banks and financial institutions now offer tailor-made loans based on the nature, scope and goal of one’s vested requirements.

Reasons behind applying a Business Loan

There are supposed to be numerous reasons why people apply for a business loan. Probably, the most obvious reason is to extend the scale of a small firm into a huge and significant one. Loans can help the firm to cover up the expenses, while expanding the firm or business without affecting the operation funds of the same. Some other reasons are stated and elaborated below:

  • Equipment or infrastructure

Every business firm, whether it is small or big, equipment and infrastructure constitute the basic necessities. Every firm needs equipment according to their respective demands such as machinery, technological upgrades, support system etc. Normally speaking, the machinery and other technologies tend to become dated and unusable over time, and, as such, a company or venture would most definitely need to change it accordingly. As a result, this change in the intrinsic infrastructure becomes an extra expense for that firm as they often go over the budget. Loans can help to manage the cost of the equipment, and also keeps the business up to date with the new technology that can inherently improve the state of the service in question.

  • Cash flow

Cash flow is always a challenge for small businesses, and it can continue to be a major problem whilst dealing with the customers who are not as easily ready to part with their money in return for the services in question. In order to get rid of these specific problems with the cash flow being disrupted, such businesses take a short-term loan to provide money for regular operational costs. It also helps the business stay afloat when the amount of profit generated is quite low by keeping money flowing in the business so that the firm can continue to bring in new customers to drive into the revenue itself.

Criteria for applying business loan

The word, loan, can be a confirmation relief to a particular firm owner or the businessman in question, but applying for a loan is not an easy process under any circumstances. There are some basic requirements which people need to follow whilst applying for a loan appropriately and in a correct fashion. Some of them are as follows:

  • Reason- To apply for a loan the very First thing people need to clarify what purpose is supposed to be that they are in need for applying for the loan. Based on this fact, the bank will go for the further processing and determination if the reason happens to be valid enough in accordance with the standards and rules of the bank itself. For example, if the loan is required to buy machinery, there are a number of banks and NBFCs that provide equipment and machinery loan and equipment finance. Therefore, knowing the need for the loan is sometimes vital.
  • Books of accounts- This is a vital component when people apply for the loan from any bank. Nowadays, the banks have tightened the process of granting the loan and are, as such, very particular about whom they will grant the favour in the end. So, keeping a proper book of accounts is very important.
  • Providing the valid documents and answer during enquiry- Before granting the loan, the bank would ask for some documents. Bank may generally ask for the balance sheet of the company, profit and loss of the account, cash flow statement etc. Also, bank will ask to provide one year income tax returns of the company on which the loan people are applying. This is a method by which the bank is supposed to determine if the history and records of the business in question is transparent enough without having much in the way of discrepancies.
  • Beside all of the above listings, some other criteria is also required to apply for the loan. But, these are the very basic and important criteria, which almost all the banks uniformly inform before granting the loan.

Types of Interest Rates for Business Loan

These above steps will be followed after the entrepreneurs choose the bank from where they will apply for the loan. Mostly entrepreneurs choose a particular bank according to the interest rate the bank will charge after the loan has been dispersed with. Each bank has different interest rates according to their bank norms. So, it entirely depends on the entrepreneurs from which bank they will apply for the loan. With the survey done recently.

Business loan interest rates in India are of two types:

 1) Diminishing rate of Business Loan Interest

When an interest rate is levied per month on the remaining loan amount, it is referred to as Diminishing or Reducing rate of interest.  In this system, the EMI stands out to be the interest rate that is to be paid for the outstanding amount for every month in addition to the principal amount of repayment.

2) Flat rate of interest for Business loan

Flat rate is the more conventional path taken as a loan system whereby the bank uniformly charges an unwavering rate of interest over the entire period of time when the money is returned to the bank itself.


Loans have been a game changing factor for many a business or company at times when they especially need a certain, large amount of money, otherwise of which the business has a very real chance of going under. Recognizing the situation, and then choosing the bank along with the perfect loan plan is instrumental for any individual or party looking to apply for a loan for the circumstances that are intrinsically unfavourable to the company in question.

Leave a reply