Business loans are provided for sole proprietorship firms, partnership firm, public companies and private limited companies. Pretty much all the banks in India offer business loans that are unique and have different features and different interest rates. The catch with business loans is that the banks need collateral for the loan amount provided. But there are some schemes which offer loan without the requirement of collateral too, this exists under Credit Guarantee Trust Fund, for micro companies and SMEs. But if there is one thing that borrowers are always confused about is how much they can actually avail from the business loan. Most of the banks offer business loans up to Rs.1 crore. But there are a lot of factors that come into play when deciding how much loan amount can be granted for the loan.
Listed below are the factors that decide the loan amount you can avail from your business loan.
Who is eligible?
Listed below are the entities that are eligible to avail a business loan.
Listed below are the factors that decide the loan amount you can avail from your business loan.
- Collateral- Banks grant huge loan amounts under business loans and in order to be able to do so they require some sort of collateral that they can use to recover the loan money in case the entity defaults on the loan. Usually residential/commercial/industrial property is preferred as a form of collateral. One can also use liquid securities as a collateral. The higher the value of your collateral, higher the loan amount.
- Condition of the company- Every bank goes through the financial record of the company they are granting the loan for before the loan is granted. This is done to get a clear picture of the financial condition of the company. If the company is already in debt or in a cash crunch, the banks might cut down on the loan amount or even refuse to grant the loan at all.
- Economic condition- Economic condition of the country plays a huge role when it comes to granting a small business loan. It is hard for banks to raise money during an economic slowdown. And if there is an economic slowdown, it is safe to not keep your hopes high on a hefty loan amount.
- Credit history- Agencies such as Crisil gives out credit ratings for a company based on repayment capability and financial strength of the company and in case of a sole proprietorship, the credit history of the individual will be reviewed. A poor rating will result in a low loan amount whereas a good credit history will ensure that you get the highest loan amount.
Who is eligible?
Listed below are the entities that are eligible to avail a business loan.
- Sole proprietorships
- Partnerships
- Public Limited Companies
- Private Limited Companies.