What is a business loan?

As the name suggests, a business loan is an instrument of credit given to businesses exclusively. Business loans are given to enterprises that have been in business for at least two year. Business loans are the lifeline for Medium, Small and Micro Enterprises (MSMEs).

Why do MSMEs need business loans?
One of the characteristics of MSMEs is that they are starved for cash. Businesses need money for a lot of things, such as paying salaries, upgrading equipment, taking on special projects, etc. Big companies raise a large chunk of their capital through the issue of shares and bonds. MSMEs don’t usually have the capacity to raise money from the public, and that is the reason why MSMEs rely upon loans for fulfilling their financial requirements.

What are the documents required for a business loan?
The process for applying for a business loan is pretty simple, and you need to keep these documents ready when applying-

  • PAN Card: A copy of the PAN card of the business and/or the owner(s) is required.
  • Identity proof: Proof of identity is compulsory. One can use Aadhar, PAN, driving license, etc.
  • Address-proof: One can use Aadhar, Passport, Driving License, or Voter ID as address proof.
  • Income tax return statements are also required, along with audited accounts of the business.
  • Bank statements for the past six months are required as well.
  • The business also needs to disclose their cash flow statements, so as to ascertain repayment capability.
  • The business must keep a statement of debt obligations ready to be produced on demand.
  • Documents such as partnership deed in case of a partnership business, memorandum of association, articles of association, etc. are a few more documents one needs to enclose.

 

The Bottom Line– Small and medium businesses need a good amount of cash to keep floating in the market. Generally, a lot of such businesses don’t have the cash flow needed to meet the capital requirements. Business loans are generally unsecured, meaning that the borrower’s creditworthiness only supports them and that is the push small and medium enterprises need to become successful.

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