What is a Business Loan?
A business loan is a type of financing provided by banks, credit unions, or online lenders to help businesses cover expenses, expand operations, or manage cash flow. It’s repaid over time with interest, usually in fixed monthly installments.
Advantages of a Business Loan
Access to Capital: Provides immediate funds for growth, equipment purchases, or working capital without dipping into personal savings.
Flexibility: Can be used for various purposes—hiring staff, marketing, inventory, or even debt consolidation.
Builds Credit: Timely repayments improve your business credit score, making future borrowing easier and cheaper.
Retain Ownership: Unlike equity financing, you don’t give up control or shares of your business.
Tax Benefits: Interest paid on business loans is often tax-deductible, reducing your taxable income.
Eligibility Criteria
Eligibility varies by lender, but common requirements include:
Business Age: Typically, your business should be operational for at least 6 months to 2 years.
Revenue: Minimum annual revenue (e.g., $50,000–$100,000), though this depends on the lender.
Credit Score: A personal or business credit score of 600 or higher is often required, though some lenders accept lower scores with higher interest rates.
Legal Status: Your business must be registered (e.g., LLC, corporation, sole proprietorship) and compliant with local regulations.
Profitability: Some lenders require proof of consistent profits, though startups may qualify with a solid business plan.
Documents Required
Lenders typically ask for the following (may vary based on the loan type and lender):
Business Plan: Outlines your goals, revenue projections, and how you’ll use the loan (especially for startups).
Financial Statements: Profit and loss statements, balance sheets, and cash flow statements for the past 1–2 years.
Bank Statements: Usually 3–6 months to verify revenue and cash flow.
Tax Returns: Personal and business tax returns for the last 1–2 years.
Credit Report: Either personal or business, depending on the lender.
Legal Documents: Business licenses, registration papers, articles of incorporation, or partnership agreements.
Loan Application: A completed form with details about your business and the loan purpose.
Collateral (if applicable): Proof of assets (e.g., property, equipment) for secured loans.
Final Notes
Loan types—like term loans, SBA loans, or lines of credit—have specific advantages and requirements, so it’s worth researching what fits your needs. Interest rates and terms depend on your creditworthiness, business performance, and the lender. If you’re applying, double-check with your chosen lender for their exact criteria and document list.
Rate of Interest: 5% Tenure 1 to 20 years