Business Loan

Any legitimate business purpose: buying stock, bridging receivables, paying salaries through a lean quarter, purchasing machinery, fitting out a new branch or refinancing costlier debt. Lenders do ask for an end-use declaration, and on secured facilities they may verify it — so the stated purpose should be the real one.

Unsecured is faster, needs no collateral and costs 4–6% more; secured is cheaper, allows a longer tenure and a larger amount, but takes weeks and puts an asset at risk. As a rule: unsecured for short, urgent, self-liquidating needs; secured for anything large or long. For many businesses the right answer is a small unsecured facility now and a secured one arranged properly alongside.

Typically three years of ITRs with computation, audited financials, twelve months of bank statements for all operating accounts, GST returns, KYC and business registration or Udyam certificate, and details of existing loans. For secured facilities, add the property title chain and a valuation. We assemble and sanity-check the file before it goes in, because a file that raises questions gets priced for the doubt.

Unsecured lending is usually sized off turnover and bank credits — commonly 10–25% of annual turnover, capped by your ability to service it. Secured lending is sized off the collateral, at 50–70% of property value. Both are then tested against cash flow: lenders want operating profit comfortably above total debt servicing, generally 1.25 to 1.5 times.

The Credit Guarantee Fund Trust for Micro and Small Enterprises guarantees a large share of a lender's exposure, which lets banks lend to eligible MSMEs without collateral. It is how a sound but asset-light business gets a bank rate instead of an NBFC one. You pay an annual guarantee fee, still far cheaper than the spread you would otherwise carry.

A term loan gives you a lump sum repaid on a fixed EMI schedule; interest runs on the whole amount from day one. An overdraft or cash credit gives you a limit you draw and repay as needed, with interest only on what is actually used and only for the days it is used. For a fluctuating cash cycle, an OD is usually far cheaper in practice even at a similar headline rate.

By credit score — both your CIBIL personal score and the commercial one — business vintage, turnover and profitability trend, banking conduct, the sector you operate in and whatever security you offer. Two businesses with identical turnover can be quoted rates 5% apart on the strength of their filings and statements alone.

Unsecured loans from NBFCs and digital lenders can be sanctioned in two to seven working days once the file is complete. Bank facilities take two to four weeks, and secured loans three to six weeks, because legal and technical valuation on the property sits in the middle. Starting the conversation before the money is urgent is worth more than any rate negotiation.

It is harder. Most lenders want two to three years of filed returns and a year of operating history, so a genuinely new venture usually starts with a Mudra loan, a government-scheme facility, a loan against property in the promoter's name, or a personal loan taken deliberately and repaid quickly. We will be straight with you when the honest answer is 'not yet, and here is what to fix first'.

When the amount is large, the tenure is long and you have unencumbered property you are confident of holding through the loan. The rate advantage over unsecured lending is substantial. What it is not suited to is a short-term gap — the processing cost and the time make it heavy-handed — nor to a business whose survival is genuinely uncertain, because the home should not be the last thing on the table.

Interest on a loan taken for business purposes is generally allowable as a business expense, as are processing fees, which reduces the effective cost meaningfully at a 30% tax rate. Repayment of principal is not deductible. Keep the end-use documented and the borrowing clearly on the business side — your chartered accountant will thank you at assessment.

A government scheme for micro-enterprises, delivered through banks and NBFCs in three tiers — Shishu up to ₹50,000, Kishore up to ₹5 lakh and Tarun up to ₹10 lakh — without collateral. It is designed for small manufacturing, trading and service units and is often the most sensible first formal borrowing for a small business.