Defining Business Loan
A business loan is taken from the bank to start a business or expand an existing one. This money has a percentage of interest and is payable in a fixed period. However, loan aggregators help you with the best repayment options for a good 5 years. Explore Buddy Loan in order to reap more benefit for a business loan.
This loan can be an unsecured personal loan that you may apply against another income that you have. To get this loan, you may sometimes have to give collateral, but in other instances, you will get a pre-approved loan without any hustles.
Business loans can be advanced to customers with different profiles, and they will take into consideration the ownership of the business, whether its registered and what its form of registration is. Professionals are also allowed to borrow business loans to expand their consultation businesses. However, banks have prerequisites that they consider when you are applying for a business loan
• You have to have a solid business plan for the money you are borrowing
• You have to have an asset base that will serve as collateral for the loan you are asking. The higher the amount of credit, the more the guarantee
• You have to have sound industry experience as this almost assures them of your growth and success
• Your business has to have good credit
• You as the entrepreneur has to have a good credit score that will be ascertained from CIBIL
Types of business loans
- Line of credit loans
• Interim loans
• Secured and unsecured loans
• Balloon loans
• Letter of credit
• Alternative financing
• Instalment loans
Business loans may be used to:
- Start a business
- To expand an existing business
- To improve the machinery and tools
- To develop human resources and abilities of the business
- Eligibility for a business loan
- Proof of identity
Business loan requirements
- Income: You will have to show proof of income from your business continuity
- You need to have six months bank statement that will demonstrate a turnover of INR150000
- You need a board resolution in case of a limited company or co-borrowers’ details and authorization letter.
- Financial documents: Statement of computation of the business income for at least two years and an audited profit and loss account statement
- Should be a citizen of India
Age limit: You have to be of at least be 21-65 years
Advantages of business loans
Business loans in India attract a tax benefit. Loan aggregators such as Buddy Loan help you reach with ease. When you get a profit, and you pay for your credit it is treated as an expense and therefore
- The loans are accessible and convenient
- Business loans offer multiple loan options for their customers
- Affordable loans
- Business loans
- Business loans in India
- Quick business loans
- Affordable interest rate
- Banks do not share in the profit you make, unlike angel investors and venture capitalists
- Business loans have lower interest rates.
Business Loan without a PAN card
A business loan is a credit that is procured from a lender at interest to grow or start a business. The PAN card is a mandatory identification document in India.
The PAN card is a unique 10-digit number that is unique to every tax liable entity. A business is liable to tax. Availing a loan through loan aggregators can suffice your financial needs with a PAN card. It is mandated that any loan is to be approved over PAN details. Moreover, Buddy Loan encourages the borrowers to keep their PAN card handy while applying for a loan.
You can get a business loan using your PAN number. This is particularly possible when your business is a sole proprietorship. You can also get a business loan even when your business does not have a PAN number. However, you can only access a maximum of 50,000 Indian rupees.
Business loan requirements:
- Identification proof
- Statement of computation of income
- Audited profit and loss
- Address proof
- Proof of continuity of business
- Board resolution
- Latest ITR for co-applicants
- Proof of Ownership of office
When the business owner does not have a PAN number, and he requires getting a business loan, then he has two legally accepted options to be able to get the loan.
The business owner will be filling a form 60 and initiate the process of PAN number application. This is a legally accepted document as regards the income tax requirements.
You need to fill this form if you do not have a PAN number, or you stand to be fined 10,000 Indian rupees under section 272 of the income tax act.
You can also get a business loan using an Aadhaar card, as it also shows your identification details. The Aadhaar card can be used in place of the PAN number.
This also applies to other personal loans and online personal loans. Another way you can get a business loan without a PAN card is by pledging your gold to the bank and getting a gold loan.
You should also ensure that you initiate the process to acquire a PAN number so that you can be eligible for higher amounts of loans and at better interest rates.
Steps to get your business PAN number
- Fill the application form p49 NSDL website
- Fill in the application type
- Fill company registration number
- Fill in the assessing officer code
- Upload required documentation
- You will receive an acknowledgement number
- Send the signed acknowledgement within 15 days
Requirements for business PAN number application
- Certificate of no objection
- Certificate of incorporation
- Copy of registration certificate from country of origin(foreigners)
How is EMI calculated on my business loan?
The EMI on your business loan is the amount you will be paying monthly to your loan lender. This amount is computed to include the interest and the principal amount. You pay steadily fixed EMIs for the tenure of the loan, progressively, reducing the amount of money you owe the bank.
The bank may choose to calculate the EMI using the reducing balance method or the flat rate method. `
However, loan aggregators help you with the best repayment options for a good 5 years. Explore Buddy Loan in order to reap more benefit for a business loan. Meaning more benefits on tax.
Factors that affect the size of your EMI
Change in loan tenure: When your loan tenure is changed, even by a month, it changes the size of EMI. When you want a smaller EMI amount, the tenure is elongated. However, the longer the tenure, the higher the interest rate.
Higher EMI amounts result in a shorter tenure and lower interest rate.
Prepayment of the firsts EMI
When you pay the first EMI in advance, it reduces the size of the principal that you owe the bank. Therefore, as a result, your consecutive EMI amounts will be reduced.
Shifting your loan to a different lender:
Different lenders have different interest rates, and therefore, the amount of EMI will vary. When you transfer your business loan to a different lender, then your payment changes.
Flat rate method
Principal amount+ interest on the principal = EMI
Number of periods* number of months
Reducing balance Method 1
The mathematical formula to calculate EMI
P*R*(1+R) ^N = EMI
P =principal amount
R =The rate of interest
N = Number of repayment periods
Using an excel worksheet
Using the same variables but the function
PMT=Rate* number of repayment periods* amount of loan
Use an online calculator. If you are applying for an online loan, most providers will have an online calculator where you key in the variables and compute your EMI.
The bank computes the interest you pay using two methods. These are:
• Simple interest. This type of investment is calculated only on the amount of loan given out.
Principal* interest rate * the Number of repayment periods.
• Compound interest: In this method, the interest is added back to the amount borrowed for you to calculate the next year’s interest
Principal*interest rate= interest for year 1
Principal interest for year 1) * interest rate = interest for year 2
Factors affecting your business loan interest rate
- Amount of interest paid depends on the prevailing bank interest rates
- Your credit score matters a lot
- Late payments cause an increase in your interest rate
- The terms of loan affect the interest rate
- The interest rate is the price you have to pay
These factors will, in turn, affect your EMI. Therefore, it is paramount to be keen on each element as you apply for your business loan.
Availing a Business Loan, …
You have successfully applied for the business loan, and your repayment period has set in. It is every entrepreneur’s joy and desires that they can make the EMIs efficiently and on time. Sometimes, even with excellent planning, some incidents happen and render the borrower incapable of repaying the loan on time. However, loan aggregators help you with the best repayment options for a good 5 years. Explore Buddy Loan in order to reap more benefit for a business loan.
This is a frightening situation as much as it is depressing. However, do worry as you can approach the bank and explain your situation to the bank. Banks are institutions governed by a code of ethics. When you explain your situation to the bank, they will find the right way to go about paying your business loan.
If anything happens to you after you take the business loan that renders you unable to service your EMI, then the bank may alter the loan tenure or give you a repayment holiday.
Disadvantages of defaulting
• Higher interest rate
Failing to pay your business loan will result in a higher interest rate in your future personal loans as well as a business loan. You should, therefore, be cautious about your payment dates so that you remain on schedule.
• Lower credit score
Late payments will result in you losing your previously held credit score. Ensure you pay your EMIs on time so that you can improve your credit score. Your credit score determines your future loan approvals.
• Additional cost
When your interest rate is higher, then your business will suffer additional cost, and you will also not be able to claim a tax exemption.
• Action from the borrower
When you realise you are having challenges in serving your loan, then you should take the initial step to approach the bank when you notice difficulty is servicing your loan
• Declaring bankruptcy
The lender may declare you bankrupt and proceed to sell the assets that you may have attached when applying for the loan.
When you take some short-term loans, the business is sometimes pushed to the edge and is unable to service the loan repayments. However, there is reprieve when you apply for a long-term loan to refinance the short term one.
• Reschedule your loan
You may ask your business loan provider to help reschedule your loan repayment tenure. You may choose to increase your loan tenure so that you pay small EMI. Thereby giving you time and comfort to pay back your loan.
• Foreclose If you fail to pay your EMI on time and you want to avoid running into problems with the bank, then you can choose to foreclose your loan.