Top Indian Banks for Availing Business Loans within the Country

Business loans are basically personal loans availed to meet expenses related to the operations of a business. Be it for ensuring smooth functioning of enterprises or raising capital for expansion, business loans are the best options for entrepreneurs. However, when you make an application for a business loan, the lender / bank will carry out a check of your documents to ascertain whether or not you are eligible for credit. The documents that will require verification include your credit report, your cash flow statements and other accounts that carry information regarding the gross profit recorded by your business.

Business loans are usually granted without any need for the borrower to pledge a collateral security or mortgage. Since business loans are generally unsecured loans, there is no need for guarantee from group members either. In essence, business loans are considered as personal loans only for individual businesses as they are mainly granted to meet small business expenses. The business / concern’s status does not determine the eligibility of an individual for a business loan, but what counts is the status of financial attributes and the tenure and capacity of repayment.

The main aim of a business loan is to facilitate the development of a business concern. To avail one, you will have to ensure that there are no risks associated with your enterprise as banks and lenders are usually sceptical when it comes to lending to individuals who have a rather high element of risk. It is also important to maintain a complete documentation of all the loan you have previously availed from other institutions. The manner in which your personal financial values are managed will determine whether or not you qualify for a business loan. Even your business plan must be documented and presented to the lender when required as it plays a crucial role in helping the bank / lender determine your eligibility for credit.

The best financial institution to approach when seeking a business loan is the one that previously helped finance your business. The main reason for returning to your primary lender is that it is already aware of your past records and reputation with regards to handling credit. The lender will also possess a summary of your financial accounts, thus making the application process less tedious for the borrower as your business behavior is already acknowledged and the bank will be more confident in you so far as repayment is concerned.

The best banks to approach for business loans

Entrepreneurs of small businesses have several options when it comes to availing business loans. Most banks and lenders that have business loan facilities offer them at similar rates of interest, making it difficult for individuals to ascertain which bank best suits their requirements.

ICICI Bank offers term loans worth Rs.15 lacs and does not request any collateral security from the borrower. All that is expected of the borrower is that he / she submit all the necessary documents for verification, like their income tax returns for the past three years and personal ID documents as requested by the lender.

Oriental Bank of Commerce deals with the public sector and operates in somewhat similar fashion to ICICI Bank but offers loans without any securities at a slightly lower rate of interest. The Oriental Bank of Commerce is ideal for entrepreneurs seeking to expand their businesses. 

Citibank provides personalized business loans so that a large number of small businesses can gain access to funds without providing any past financial records or collateral. Individuals who borrow from Citibank will not even have to deal with distribution or processing costs, making it considerably cheaper for the borrower to avail the facility.

HSBC Bank has grown into one of the most popular banks among Indian borrowers seeking business loans. Having updated its factoring services and overdraft to help small businesses develop and excel in its operations, it is no surprise that HSBC is one of the most-preferred lending institutions in the country.   

All of the aforementioned banks offer special schemes to individuals seeking business loans, making them great options for entrepreneurs who wish to expand their businesses or meet working capital requirements.

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MUDRA Bank Loan

MUDRA or Micro Units Development and Refinance Agency Ltd. is a financial institution set up by the Indian government with the goal of fulfilling the corporate small businesses’ funding needs. MUDRA prepares and launches the policy guidelines and regulates the Micro Finance Institutions. The MUDRA Loan will benefit the shopkeepers, beauty parlour owners, fruit and vegetable sellers, hawkers, truck operators, artisans, etc.

MUDRA Loan Schemes

MUDRA has created 3 categories of schemes to fund during the growth stage, the development stage and the funding stage. The schemes are:

-      Shishu category:

This category is for the start-ups whose businesses have not yet started and are looking for loan. Loan of up to Rs.50,000 will be given to the micro units that fall under this category. Collateral is not required to avail this loan. There is no processing fee being charged either. The rate of interest offered is 1% per month. The repayment term extends to 5 years. Working capital loan will be given via MUDRA Cards.

MUDRA Cards are issued by the banks directly or in association with the Micro Finance Institutions. It is issued as RuPay Debit Card and can be used to withdraw cash from ATM or can make payment online or at POS machines.

-      Kishor category:

The business which are running but are yet to be established will fall under this category and the loan offered ranges from Rs.50,000 to Rs.5 lakh.

-      Tarun category:

The small businesses that have been set up and have established themselves fall under this category. The loans are offered to either expand or to utilise the money for the betterment of the business. Businesses falling under this category will get loan up to Rs.10 lakh. 

Eligibility criteria of Mudra Loan

The eligibility criteria for participating banks are as follows:

-      The scheduled commercial banks in the public or the private sector who have had 3 years of continuous profit record and whose NPAs are not exceeding 3% and whose minimum net worth is Rs.100 crore and CRAR not less than 9% are eligible to lend loan.

-      The restructured regional rural banks whose net NPA is within 3% and have a profitable operation and not carrying over any accumulated losses and whose CRAR is more than 9% are eligible to lend MUDRA loans.

-      Micro Finance Institution and the small business companies can also lend MUDRA loans if they fulfil the requirements. 

Apply for MUDRA Loan

The following are the steps you must follow to apply for the MUDRA loan:

-      Prepare a business idea and present the idea along with the application form.

-      Visit the nearest bank either the scheduled bank, regional rural bank, scheduled urban co-operative bank of a Micro Finance Institution that offers MUDRA Loan.

-      Present the Idea along with the other required form to the bank.

-      Provide address and identity proof along with passport sized photographs.

-      Borrower must fulfil all the formalities that the bank requires.

Loan will be sanctioned and then it will be made available at the earliest.

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Guidelines to Pay EMI’s on Time during a Financial Crisis

One may take up a loan based on his/her needs and this may be due to an emergency or if the time is opportune to fulfill a goal such as purchasing a car. Whatever the reason may be, most of us at a given point of time in our lives will end up availing a loan. While the value they serve is of utmost importance in fulfilling our needs, loans bring with them a huge responsibility and financial commitment. The borrower will have to curtail expenses to make equated monthly installments(EMIs) and there will always be a worry of paying off the next installment.

These equated monthly installments or EMIs are structured around the tenure of the loan and the amount borrowed. Unless there is an intention of fraud, most borrowers have every intention of repaying the loan amount. But in life, emergencies come unannounced and there are certain scenarios that come up which prevent the borrower from making these payments. This could be the loss of employment, medical emergencies or unforeseen expenditures that may arise and prevents an individual from making the monthly payments and if one or more payments are missed, it could lead to serious consequences.

The main impact of missing payments are that it adversely affects the borrower’s credit score. This will make availing future loans very bothersome. The easiest thing to ensure payments of EMI’s and protect the credit score is to borrow the required amount from friends and family members to tie over the next few payments.

If there is a continued difficulty in meeting monthly payments, one should intimate the financial institution the amount was borrowed from. Most banks will try and figure out an alternative solution as they would not want borrowers to default on their loans. They may not alter the total amount but would be willing to lower the installment amount by lengthening the tenure.

During times of a financial crunch, cutting out expenses wherever possible and only making the necessary payments may help tide things over for a while. The small concessions made will add up over time and bring much needed relief.

If there are any other investments made, they should be broken wherever possible if the penalties applied on missed payments far outweigh the returns from that investment.

Difficult situations are very hard to predict but when such situations do occur, one should be calm and collected and follow these steps to ensure they don’t go further into debt. Worry and inaction will only lead to further trouble.

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How to Calculate a Loan Payment?

The earth might revolve around the sun but the world today revolves around money. Banks now offer loans for every possible occasion, be it for your house, vehicle or any other personal/professional requirement.So you have decided to approach a particular bank for a loan. Unlike in the past it is now much easier to get loans and you might think that your work is limited till the time you get the money. Getting a loan sanctioned might be the first step involved but loan payment can become a hassle if not paid attention to. So you need to calculate loan EMI by Loan Calculator

The math around calculating the loan payment amount might confuse a lot of people and they might leave it upto the bank to guide them through the payment process. This confusion however can be easily dispelled. The world of banking has now entered new domains and calculating loan payments is easier now with Online Loan Calculator tools available in the market.

Calculating Loan Payment :

Manually

Manual calculation of loan payment revolves around a few formula, which seem confusing but are easy to understand by keeping an open mind.

P = (R * A) / (1 - (1+R)^-N)

Here,

P is the Payment amount,

A is the Loan amount availed,

R is the annual rate of interest,

N is the number of payments.

So if one takes a loan of Rs 10,000 at the rate of 10% per annum for 2 years the calculation will look like this.

P= (10*10,000)/ (1-(1+10)^-2)

P= 11,074.78

The total amount is to be paid in 24 months, which means the monthly payment is Rs 461.45.

Given below is another formula to calculate loan payment amount.

P = RA / (1-(1+R)^-N)

Here,

P is the payment amount,

A is the loan amount availed,

R is the rate of interest,                                                    

N is the number of periods.

 

Points to remember while calculating loan amount manually

·         The rate of interest for the given period and the number of periods (months/years) should be kept consistent with each other.

·         If payments are to be made monthly the interest rate per month needs to be considered.

Use of Loan Payment Formula

A loan payment formula can be used to calculate any type of conventional loan, i.e. mortgage, consumer loans, personal loans or business loans.

Disadvantages of Loan Payment Formula

·         The biggest disadvantage of using loan payment formula is that they are not easy to remember.

·         Calculations can also be tricky for those who are not well versed with maths.

·         Complex formula can take a long time to calculate and get a value.

·         Any small error during calculation could give a wrong payment amount, which could see one paying more than the actual payment needed.

Online Loan Payment Calculators

Manual loan calculations might not be feasible in today’s fast paced world, which is where online loan payment calculations come in handy. Almost all banks have online loan payment calculators in their websites.

Here’s a simple step by step procedure to calculate your loan payment amount online.

Step 1. Log onto any banking/loan calculation website.

Step 2. Enter the loan amount.

Step 3. Enter the rate of interest.

Step 4. Mention the period of loan (months/years).    

Step 5. Click the calculate button.

Advantages of Online Loan Payment Calculators

·         Fast - the time required to calculate loan payment amount is extremely less.

·         Easy – there is no mental calculation required and the process is easy and simple.

·         Less errors – Online calculation ensures human error is reduced to minimum.

So feel free to do the math and calculate your loan payment amount with online loan calculator without the help of a banking agent.

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