The business loan disbursement process is complex and it is important for the businessman to know about it before availing a loan. A step-by-step guide will help him with being prepared with all the necessary documents, eligibility, and other aspects related to loan disbursement. In this blog, we will discuss the business loan disbursement process in depth.
A business loan is borrowed to overcome the financial weaknesses of a business. A businessman faces many challenges while running a business. And one same challenge is the paucity of funds. To overcome this, he applies for a business loan. However, there are a lot of factors and aspects of loan for a business that must be considered before applying for a business loan.
And one such important aspect is the disbursement of the loan. To get a better understanding of the loan disbursement process, the businessman must get the understanding of the other aspects of the business loan as well. Let’s first comprehend the other related topics for a better understanding of the loan disbursement process.
Type of Business Loan
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The procedure for business loan disbursement will depend on the type of business loan an entrepreneur is availing. There are different types of business loans that are being offered in the market. The loan for a business is majorly categorized on the basis of secured business loans and unsecured business loans.
A secured business loan or collateral business loan is offered with security. The businessman availing a secured loan must hypothecate an asset having monetary value with the lender to avail this type of loan. And an unsecured business loan or collateral-free business loan is offered without security. The businessman availing this type of loan is not required to hypothecate an asset.
The type of business loan you are availing affects the business loan disbursement procedure. For instance, the lender will have to evaluate the value of the asset hypothecated to assess the amount of the loan to be sanctioned. With this step added to the disbursement process, the disbursal of the loan takes longer time.
The other types of business loan that you can avail include SME loan, MSME loan, machinery loan, working capital loan, capital loan, term loan, and flexi loan. All these different types of loans are categorized on the basis of the purpose for which they are availed. Notably, all these types of loans can be secured or unsecured in nature.
Business Loan Eligibility Criteria
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The loan eligibility criteria also add to the disbursement process. The lender will take time to check the eligibility of the borrower and this is an important part of the disbursement process. No lender would ever want to risk their money so they have set some eligibility criteria that the borrowers must meet in order to avail a loan.
The loan eligibility is different for every lender. And before zeroing in on a lender, the entrepreneur is suggested to check the eligibility criteria laid by the lender. This will help in eliminating the lenders whose criteria they don’t meet and thus, save time. Notably, the CIBIL score is an important part of the eligibility criteria.
A high CIBIL score is required to get the loan for business sanctioned. Also, a high CIBIL score lowers down the risk on the part of the lender. So they offer loans at lower interest rates to the borrowers. Read how to improve CIBIL score.
Business Loan Documents
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The loan disbursement process will also depend on the time taken by the lender to check the business loan documents. The loan documents are required to check the financial stability and creditworthiness of the borrower. With the documents, the lender checks if the information provided by the businessman is correct or not.
There are some lenders who require a long list of documents while some require fewer documents. A businessman is suggested to look for a lender who requires a minimal list of documents as it will ease him with collecting the documents.
Business Loan Disbursement Process
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What is loan disbursement? The meaning of loan disbursement is the credit of the loan amount into the borrower’s account. There are many best business loan providers in India who offer loan at the best interest rates. Although all their eligibility and documents requirements are different, their loan disbursement process is more or less the same.
The following is the loan disbursement process flow:
The first step in loan disbursement is the loan application. The borrower applies for a loan for business by filling the loan application online. All the necessary information is filled here, such as the type of business loan (secured or unsecured business loan) seeking and the amount required.
At this stage, the borrower can either apply for a business loan online or offline. The offline loan application will take the entire day or days some times whereas the online loan application will require just a few minutes. The offline method is usually employed by the banks and online method by NBFCs in India.
In addition to the application form, the supporting documents are also submitted. Again, if the offline application is filled, then hard copies of the documents are submitted. And if the online application is filled, the soft copies (PDF) of the documents are to be uploaded. The collateral documents are also to be submitted if availing a collateral business loan.
Processing: After the submission of the loan application and documents, the lender checks the eligibility criteria and documents of the borrower. If the borrower has applied for a secured business loan, it will take some time for the lender to assess the value of the collateral. In collateral business loans, the value of the loan is lower or equivalent to that of the collateral hypothecated.
And in case of unsecured business loan, the loans are immediately processed and approved/rejected on the basis of the eligibility of the borrower. Businessmen seeking instant business loan must apply for collateral-free business loans.
Disbursal: If the loan application is approved, the loan amount is finally credited in the borrower’s account. If the loan for a business is availed from a bank, it would take a week or two in disbursal. Whereas if the loan is availed from an NBFC, the loan amount is disbursed within a few days.
Also, in case the application is rejected, the entrepreneur will be informed via an email, message, or call.