Introducing The Small Business Owner’s Guide To Loans

There has been substantial growth in small businesses in the last few years. Small Businesses constantly require additional funds to run smoothly. An MSME Business Loan helps meet all the additional funding requirements. 

These SME/MSME Business Loans are influenced by the SME/MSME Loan interest rate offered by the lender. Hence, a borrower needs to compare all the lenders in the market and choose the most suitable lender with the lowest interest rate. A small business owner can approach lenders such as banks, NBFCs, and the government to avail MSME Business Loan. Now, let us learn more about Business Loan for small businesses: 

What are the Types of Business Loans?

– Working Capital Loan 

Working Capital can be used for meeting any short-term liabilities, such as paying rent, purchasing inventory, paying staff salary, managing cash flow, etc. Working Capital Loans help businesses meet such day-to-day financial requirements.

– Term Loan 

A Term Loan can be bifurcated into a short-term loan, intermediate-term loan, and long-term loan. The repayment schedule for a term loan ranges from 12 months to 5 years. Generally, Term Loan is availed by small business owners to meet requirements like purchasing machinery or setting up a new office. 

– Government Schemes 

Small businesses always require additional finances to stay operational and government schemes can help such enterprises mitigate various financial challenges. 

Here are a few of the government schemes that a small business owner can avail of: Credit Link Capital Subsidy Scheme for Technology Upgradation, NABARD, Mini Tools Room and Training Centre Scheme, Technology and Quality Upgradation Support, NSIC, CGS (Credit Guarantee Scheme for Micro and Small Enterprises). Stand-Up India Scheme, Mudra loan scheme, SMILE (Small Industries Development Bank of India Loan for Small Enterprises), Market Development Assistance Scheme, etc.

Along with the aforementioned Business Loans, a small business can avail of other financing options. These can include a letter of credit, bill discounting, overdraft facility, machinery loan, and point-of-sale loan. 

Eligibility Criteria for Business Loan 

You are eligible for a Business Loan if you meet the following criteria:

• The business owner should be between the age of 24 and 65 years
• The minimum annual turnover required for a business is ₹6 Lakh
• At least 2 years of business vintage (continuous operations)

What are the Documents Required for Small Business Loan?

The documentation process is one of the most important parts of the small business loan process. It provides documents and evidence for all the claims made by the borrowers. Here are a few of the must-have documents that a borrower must submit to the lender: 

• KYC documents like the Aadhaar/PAN Card of the company and key person(s)
• Current address proof (Passport/Utility bills/Rent Agreement) 
• Bank statements from the previous 3 months
• Business registration & address proof

Business Loan Calculator

Before you apply for a Business Loan, you must calculate your EMI. It helps you plan your monthly EMIs. You can calculate your Business Loan either online or using a manual calculator. 

– Online Calculator:

You can find the online calculator on any lender’s website. Follow the below-mentioned steps to calculator your EMI: 

• Step 1: Visit your lender’s official website. 
• Step 2: Check for EMI Calculator 
• Step 3: Fill in the information such as loan amount, interest rate, and tenure.  
• Step 4: By clicking calculate button, you will get your EMI amount. 

– Manual Calculation:  

You can calculate your monthly EMIs using the manual calculator. Below is the formula: 

E = [P x R x (1+R) ^ N] / [(1+R) ^ (N-1)] 

Where: 

• E = EMI 
• P = Principal Loan Amount 
• R = Rate of Interest 
• N = Loan Tenure in months 

What are the Steps to Apply for an MSME Business Loan? 

By following the below-mentioned steps, you can apply for MSME Business Loan online: 

• Step 1: Visit the lender’s official website and search for MSME Business Loan 
• Step 2: Select the ‘Apply Now’ option & fill out the loan application form
• Step 3: Enter basic details & upload documents
• Step 4: Await assessment & verification of application
• Step 5: Receive confirmation upon successful loan approval
• Step 6: Approve & authorize disbursal

Conclusion 

Small Business Loan interest rate is one of the important factors when selecting a lender and it highly impacts your repayments. Interest rate influences your monthly EMIs that you need to pay on time. Hence, selecting the most suitable MSME/SME Loan interest rate will help in better financing the additional funds.