If you are a small business and are looking for capital for investment, then a bank loan would be quite helpful. With this money, you can buy equipment, pay workers or expand your business. But how do you apply for a bank loan for a small business?
Here, in this brief guide, we will help you understand different types of bank loans for small businesses, what documents are needed, eligibility criteria, how to get the loan approved and more. Read on!
Types of Bank Loans for Small Businesses
Here are some common loans for small companies:
1. Term Loans: This is a fixed amount of money you borrow for a long term and repay every month with interest. You can use it to buy big items like machines.
2. Working Capital Loans: This short-term loan would help you run your business daily. You can use it to pay rent, bills or workers’ salaries.
3. Overdraft Facility: The bank also provides an overdraft facility, with which you can withdraw more money than you have in your account. You pay interest only on the extra amount.
4. Equipment Loan: You can use this loan to buy tools, vehicles or machines for your shop or factory.
5. Government-Backed Scheme Loans: These are small business loans perfect for your startup. It includes programs like PMMY (Pradhan Mantri Mudra Yojana) for MSMEs.
6. Line of Credit: This is like a credit card as the bank gives you a spending limit, and you can use as much as you need from this limit. You only pay interest on what you use.
Eligibility Criteria For a Small Business Loan
The eligibility criteria vary from bank to bank. However, here are the basic eligibility requirements you need to fulfil:
- Your age must be between 21 and 55 years.
- Your business should have been running for 1 year or more.
- You must be earning some profit or income from your business.
- For startups, a good business idea or plan is needed.
- You should have a credit score above 650.
- Some banks may ask for a minimum yearly income from your business.
Documents Required For a Small Business Loan
When you apply for a small loan, you may need to provide the following documents to the bank:
- ID proof – Aadhaar card, PAN card, etc.
- Address proof – Utility bill, rent agreement or Aadhaar card.
- Business proof – GST certificate, shop licence, etc.
- Bank statements – Last 6 to 12 months.
- Income proof – ITR or profit & loss report.
- Business plan – If you are a startup.
- Latest passport – size photos.
Step-by-Step Process to Apply
Here’s how to apply for a small loan:
Step 1: Check with the bank if you are eligible.
Step 2: Choose the loan that suits your business.
Step 3: Collect the required documents.
Step 4: Fill out the loan form at the bank or online.
Step 5: Submit documents.
Step 6: Wait for Approval.
Step 7: Receive the money in the bank account.
Tips for Getting Approved
These tips would certainly help you get your loan for a small business quickly:
- Always pay your bills on time to keep a good credit score.
- Make sure you keep your business records clean.
- Go for a small amount in the beginning, as it is easy to get approved.
- Make a strong business plan.
- Do not apply at too many banks at once.
Government Schemes to Consider
1. MUDRA Loan
One of the most popular government schemes, MUDRA loans or Pradhan Mantri MUDRA Yojana (PMMY) loans give up to ₹10 lakh for small businesses. Under this, there are three types of loans:
- Shishu – up to ₹50,000
- Kishore – ₹50,000 to ₹5 lakh
- Tarun – ₹5 lakh to ₹10 lakh
2. CGTMSE Scheme
If you looking for business loans without security or collateral, then you can consider loans under the CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) scheme. With this, you can get a loan of up to ₹10 crore, and it is great for startups and small companies with no assets.
3. Stand-Up India Scheme
This scheme gives loans from ₹10 lakh to ₹1 crore for SC/ST and women business owners.
4. Credit-Linked Capital Subsidy Scheme
Perfect for small-scale industries. The scheme provides loans of up to ₹1 crore, with a maximum subsidy of 15% (₹15 lakh).
Conclusion
So, if your business is short on capital, taking a loan for small businesses is the best way to grow or start your company. Whether you run a shop or any small business, there’s a loan that fits your needs. You can also look at government schemes like MUDRA and CGTMSE for easy loans.
And if you do not have time and want quick money without long waits, you can apply for a ₹3 lakh instant personal loan on the CASHe app. You just need to download the CASHe app, fill in your details and upload your documents. Apply today and get approved for your loan within minutes.
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