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Types of Business Loans in India

Types of Business Loans in India

A business loan is a type of financial assistance one can avail to meet various needs of a new or growing business. The lender feels comfortable offering a business loan to a borrower if the application has a strong ‘business plan /project report’ with decent cash flow goals and capital gain much greater than the interest of the secured loan. If you don’t have capital in hand, it is better to go for business loans in the following scenarios.

  1. Planning to establish a new business
  2. Planning a rapid business expansion
  3. Need new equipment and machinery for your business
  4. Require additional working capital for your business
  5. Need capital infusion in the business to turn it profitable
  6. Need capital to replay previous loans
What are the Types of Business Loans?

There are 8 types of business loans based on their nature.

Term loans

Lenders offer both secured and unsecured business loans based on the state and needs of the business. There are three types of term loans available with the lenders, these include a) short-term loans, b) long-term loans and c) intermediate loans. The repayment schedule of term loans can be monthly or quarterly. Based on the term loan secured, the type of interest can be floating or fixed. Part of popular schemes such as MUDRA, PMEGP, etc come under this

Demand loans

A demand loan needs to be repaid based on the demand schedule of your lender. Banks and financial institutions offer both secured and unsecured demand loans. The repayment tenure of demand loans extends up to a maximum of 12 months.

Loan against securities

Such loans are offered based on bank-approved financial securities such as insurance policies, mutual funds, Demat shares, saving bonds, fixed maturity plans, etc. Such loans can be secured to mitigate an immediate financial crisis

Invoice discounting

During a financial crisis, the business can secure instant cash from the lender by submitting invoices of credit sale as a security

Letter of credit facility

Typically, businesses use this type of loan in international transactions. This type of loan can be availed based on the creditworthiness of the buyer’s bank when the seller and the buyer do not know each other. This ensures on-time payments to the seller based on the letter of credit offered by the bank

Cash credit facility

It is similar to the overdraft facility. In this facility, the maximum withdrawn limit is set by the lending bank. The repayment tenure can be renewed for such loans in each 12. Best for working capital management.

Bank guarantee

It is a type of secured loan and can be availed with a mortgage or bank guarantees such as property as collateral.

Women-specific loans

The majority of the banks and Non-Banking Financial Companies (NBFCs) offer exclusive women-specific loans to promote women’s entrepreneurship. These loans come with a plethora of benefits such as lower interest rates, flexible repayment tenure, etc.

Also Read: Documents Required for Business Loan
About Finline!

Finline is an online platform for creating financial reports for getting bank loans and investments. It’s like ‘Canva’ but for financials. If you are an entrepreneur looking for a bank loan, you need to have a well-crafted project report. We, at Finline will help you with that. Our team will help you create a powerful business plan in ten minutes. That too in your language. Also, all public and private sector banks working in India accept our project report. Click to create your report.

Step by step – question by question – you can create your report less than an hour

View sample PDF report
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Project Report Format for Bank Loan

If you need a bank loan to start your dream business, a project report is a necessary document. Struggling to make one? Don’t know the format for the project report? Don’t worry, you are at the right place!

In this blog, we will discuss about:
1) What is a project report?
2) Why do you need it?
3) How can you prepare a convincing project report?

1) What is a project report?

A project report is a mandatory document that outlines different aspects of the business or startup project. It should contain the project’s details, feasibility, and financial requirements. Here comes the next question, why does someone need this?

2) Why do you need it?

There are several reasons which show project reports as a must. Some of them are listed below:

  • Project reports will help the bank assess your project’s success rate and can thereby make sure that you can repay the loan.
  • It will help the bank understand the project’s risks and rewards.
  • Submitting a decent project report shows the lender that you have done enough homework and is serious about the project. The project report also provides information about your qualifications and experience.
3) How can you prepare a convincing project report?

The format of a project report varies from loan to loan. However, a strong and convincing project report should contain the following:

  1. Executive summary: An executive summary is a short summary containing the business’s overall status. It should be concise and should provide an overview of the entire project.
  2. Project description: It should explain the project’s nature, purpose, scope etc.
  3. Details of promoters: The details of the promoter’s skills, qualifications and experience should be mentioned.
  4. Details of Employees: Like the promoters, the details of the employee’s skills, qualifications and experience should also be mentioned.
  5. Production plan: This includes the details such as plant and machinery, raw material used and steps in the manufacturing process.
  6. Market analysis: It conducts research about the market to understand the demand for your product and services.
  7. Marketing plan: This provides the details about the marketing and sales strategies of your product/service.
  8. Project cost estimation: It’s the estimated expense that arises at the time of building the project.
  9. Balance sheet: All accounts will be visible on the balance sheet so that the lender can see where the money was spent.
  10. Profit and loss account: It shows whether the company is making a profit or a loss.
  11. Cash flow statement: It allows the lender to understand whether you have the ability to repay the loan.
  12. Loan repayment plan: This section should provide a well-defined plan for repayment of the loan.
  13. Break-Even point evaluations: It shows the point at which the project revenue equals its expenses.
  14. Conclusion: Lastly, Conclude the report by summarizing the key strengths of the project. Make it short and compelling.

Still, having trouble creating one? Let us help you. Our expert team at Finline helps you craft a compelling project report in less than 10 minutes. That too in your language. Our reports are accepted by all public and private sector banks working in India. Click to create your report.

Now there is nothing stopping you from starting your dream business. Begin your journey with Finline right away!

View a sample project report
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Factors affecting CIBIL score

The following are the main factors affecting the CIBIL score:

Repayment History   

This is a main factor that directly affects your CIBIL score. Every time a person avails credit or a loan, the lender is bound by duty to report the same to the CIBIL. The bank takes note of whether an individual repay their debts on time. If an individual makes an effort to repay in advance, it is considered as a positive sign. This indicates that the person can be trusted to repay the amount he owes.

Drastic Increase in Credit

Every earning individual would have a certain credit limit, whether for a loan or a credit card. However, utilising the available credit in its entirety would come off as credit which is seen as a red flag by banks. If an individual maintains their certain credit level for all the months but is seen spending significantly more financially, it may result in a dip in the score.

Debt to Income Ratio (DTI)

Typically, lenders do not encourage people to take more debts than roughly 40 per cent of their total income. So, DTI is a measure that is used to estimate the ability of a loan applicant to repay their debts based on their salaries. DTI is considered to be a useful metric to inculcate financial discipline in one’s self so that one would be able to repay one’s future EMIs without any trouble.

Multiple Loans

It is also a concern to banking authorities when an individual has many loans such as home loans, personal and vehicle loans and various credit cards registered in their name. It is always a good sign to close one before moving on to avail another one.

About Finline!

Finline is an online platform for creating financial reports for getting bank loans and investments. It’s like ‘Canva’ but for financials. If you are an entrepreneur looking for a bank loan, you need to have a well-crafted project report. We, at Finline help you with that. Our team will help you create a powerful business plan in ten minutes. That too in your language. Our reports are accepted by all public and private sector banks working in India. Click to create your report.

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Cibil score for bank loan

TransUnion CIBIL is a premier credit rating agency among the top four agencies in India. CIBIL has affiliations with almost every other bank in India, estimating the creditworthiness of millions of enterprises and individuals. A great CIBIL score denotes that a person follows great financial discipline and integrity. Every time an individual applies for a credit card or a loan, their recent rating is reviewed. Usually, any score above the value of 700 is considered good enough although some banks have raised the bar while others don’t.

CIBIL Score Meaning
850 – 900 Indicates that one has never defaulted on their payments even once and is an excellent score.
750 – 850 80 % of loans are approved for people who have a score above 750. This gives them the advantage to bargain for a better rate on credit cards and personal loans.
700 – 750 This indicates that the person is good to go for secured loans. However, for an unsecured loan, the bank may impose a higher rate or investigate further.
500 – 700 This indicates that a person has defaulted on their payments a few times. Personal loans would be hard to obtain, and a private financier may levy a massive interest.
300 – 500 This is considered an inferior score and indicates too many discrepancies in loan repayments to ignore. Unless the person works on improving their score, it would be close to impossible to obtain any credit from any bank in the country.
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How to Improve CIBIL Score

If you have a low CIBIL score, then don’t think it’s the end of all loans, you can improve the score and go for credit. You can improve the CIBIL score by following the given steps & it takes over six months and more for such improvements to reflect in one’s credit report.

Avail a recent credit report
Availing a recent credit report will give an individual an idea of their current position and where they went wrong. For example, if their score had dipped due to a couple of delayed payments, they should ensure that it does not happen again. Keeping targets for at least 6 months or so would help one to correct their errors if any.

Never delay payments
CIBIL score greatly fluctuates even when a minimum due is paid. One has to pay their full dues and EMIs on time to keep improve their score. It is a good idea to automate payments at the beginning of a month to avoid unexpected delays.

Creating a diverse credit-folio
This can act as evidence to any lender that one is capable of handling different kinds of credit. Creating a blend of secured loans and unsecured loans can achieve a diverse credit-folio. A high number of unsecured loans would not look favorable in any person’s name. You can lend money through gold loan, credit card etc…

Getting rid of unused credit cards
Keeping one or more credit cards idle is never a good idea. If there is no use of a credit card, one must make sure to close it with the bank.

Efficient debt handling
An individual’s score can improve well if they know how to handle their debts efficiently. For instance, a credit card works on the concept of revolving credit and may go out of control if not managed properly. In such cases, closing off credit card dues with a personal loan is a great move. One would have to pay less interest and also, can solve an issue efficiently.

Stop credit before it reaches the limit
Don’t use credit card till it reaches the maximum limit. Keeping to the Debt to Income Ratio would help one to stay on the safe side of using credit cards.

Avoid prolonging tenures
The tenure of an individual loan or credit is an essential factor that can improve one’s score. For example, if a person has taken a personal loan with a tenure of 3 years, and have raised the tenure midway for a smaller EMI, it may affect their CIBIL score.

About Finline!

Finline is an online platform for creating financial reports for getting bank loans and investments. It’s like ‘Canva’ but for financials. If you are an entrepreneur looking for a bank loan, you need to have a well-crafted project report. We, at Finline help you with that. Our team will help you create a powerful business plan in ten minutes. That too in your language. Also, our reports are accepted by all public and private sector banks working in India. Click to create your report.

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How to get a business loan?

A business loan is sanctioned to start a new business, expand an existing business purchase assets etc. Most entrepreneurs don’t know how to apply for a bank loan or what are the procedures. Here we are explaining the procedures for getting a bank loan. If we can make it
much simpler, an entrepreneur must know what the expectation of a bank is from the entrepreneur.

Before you approach a bank you should prepare the following documents:
  1. KYC documents – Your identity details – Always take identity cards such as PAN, AADHAR, Election ID card, Ration card, Driving license, Passport etc. Please take at least 3 photocopies of any of the same ( preferably Aadhar and PAN) also you should carry the original too
  2. Company registration details – Your identity details of the business like registration details whether it is currently operating or going to start a new one, you should complete the registration procedure to get a loan– MOA/AOA, Partnership deed, Panchayath/Municipality/Corporation registration details, Licenses issued for your business like FSSAI, pollution, boiler license etc whichever mandatory needed for your business. Rent agreement, GST registration (if applicable) etc.
  3. Project report – You should carry a project report for getting a bank loan which will clearly explain the details of your business, why you need the funds, how you are going to repay the loan, your business location and infrastructure facilities, projected profitability, balance sheet for the next 3-5 years etc should be there.
  4. Photograph – You should carry your photograph in order to apply for the loan. If it’s a group of people, then carry all the stakeholder’s photographs.
  5. Source of capital – The bank will issue only 75% of the total project cost, and the entrepreneur must contribute 25% of the money, commonly known as margin money. Sometimes, you need to submit the details of the margin money. Eg: Funds from friends or family etc.
  6. Personal Credit score – This is historical data about your previous bank loans, financial liabilities etc and how better you are repaying that. People typically refer to it as a CIBIL score, Experian score, etc. You don’t have to bring this, the bank can check this using your Aadhar details. If you need to know about this you can also check the credit score for free from Cibil or experion sites.
  7. Due diligence certificate – The bank manager prepares this document by cross-checking your details from other entrepreneurs or from society. Your background, experience etc will be recorded in that.
About Finline!

Finline is an online platform for creating financial reports for getting bank loans and investments. It’s like ‘Canva’ but for financials. If you are an entrepreneur looking for a bank loan, you need to have a well-crafted project report. We, at Finline will help you with that. Our team will help you create a powerful business plan in ten minutes. That too in your language. All public and private sector banks working in India accept our project report. Click to create your report.

Click here to view a sample project report for a bank loan 

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Second Installment under MUDRA Loan/PMEGP

Project report for mudra loan

From 2008 onwards the PMEGP loan scheme is there in our country. Those who availed MUDRA loan and PMEGP and also if you are repaying the loan properly, then you are eligible for getting another loan up to 1 crore.

Exiting isn’t? MUDRA and PMEGP are two prominent MSME loan scheme available in India and millions of MSME has taken it up and become a beneficiary of the same. So basically these loans are for the entrepreneurs to kick start the business. But the 2nd phase of MUDRA & PMEGP is for helping established entrepreneurs to flourish better. Just have a look at the eligibility criteria. Along with the loan, you may also get a subsidy of up to 15%. So just have a look at the eligibility criteria and benefits of the scheme.

What are the Eligibility Criteria?
  • The enterprise should be exponentially increasing its revenue and running in profit for
  • the past 3 years
  • The enterprise should not be a defaulter in previous loan amounts
  • Enterprises should generate employment opportunities during expansion
  • The manufacturing industry can avail of a loan of up to 1 crore
  • Service industry & trading can avail loan up to 25 lakhs
  • The manufacturing industry is eligible for subsidy up to 15 lakhs
  • The service and trading industry is eligible for subsidies up to 3.75 lakhs
What are the Documents required?

You need to fill up the application form from http://kviconline.gov.in and discuss the possibility with the District Industrial Center (DIC). Need to submit the audited balance sheet and profitability statement of the past 3 years, KYC documents, and a project report for your business with the projected balance sheet and other financial statements.

A project report is a crucial document when applying for a bank loan. The bank uses this document to analyze the overall feasibility, risks, financial viability, and potential of a project. A well-crafted and convincing project report increases the chances of loan approval. With Finline you can craft a compelling project report in less than 10 minutes. That too in your language. All public and private sector banks working in India accept our project report. Click to create your project report.

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Check list for MSME Loans upto Rs.10 crore

The following is the Check list for MSME Loans up to Rs.10 crore:

  1. Proof of Identity: Aadhaar Card / Voter’s ID Card / Passport / Driving License / PAN Card /Signature identification from present bankers of proprietor, partner of director ( if a company)
  2. Applicant should not be a defaulter in any Bank/Financial Institution
  3. Proof of residence: Aadhaar Card / Recent telephone bills, electricity bill, property tax receipt/Passport/voter’s ID Card of Proprietor, partner of Director (if a company)
  4. Memorandum and Articles of Association of the Company / Partnership Deed of partnership firms, etc.
  5. Proof of Business Address
  6. Assets and liabilities statement of promoters and guarantors along with latest income tax returns.
  7. Rent Agreement (if business premises are on rent) and clearance from pollution control board if applicable.
  8. SSI / MSME registration / Udyog AADHAAR Memorandum, if applicable.
  9. Projected balance sheets for the next two years in case of working capital limits and the period of the loan in case of a term loan.
  10. All the properties offered as primary and collateral securities require copies of lease deeds/title deeds.
  11. Certificate of incorporation from RoC in case of a company (CIN No. and DIN no. of directors)
  12. Bank Account details wherever applicable (with details of outstanding in case of existing loans /limits)
  13. GSTN No., if applicable.
  14. Credit Rating details and report, if available
  15. ZED rating, if available.
Check list for MSME loans with exposure above 25 lahks.
  1. Profile of the unit (includes names of promoters, other directors in the company, the activity being undertaken addresses of all offices and plants, shareholding pattern, etc.
  2. Last three years’ balance sheets of the Associate / Group Companies (if any).
  3. Project report (for the proposed project if term funding is required) containing details of the machinery to be acquired, from whom to be acquired, price, names of suppliers, financial details like capacity of machines, the capacity of utilization assumed, production, sales, projected profit and loss and balance sheets for the tenor of the loan, the details of labour, staff to be hired, the basis of assumption of such financial details, etc.
  4. Manufacturing process if applicable, the major profile of executives in the company, any tie-ups, details about raw material used and their suppliers, details about the buyers, details about major competitors and the company’s strengths and weaknesses as compared to their competitors, etc. The checklist serves as an indication and is not exhaustive. Depending on the local requirements in various places, you can make additions as necessary.

In the above list, a Business plan also known as a project report is a crucial document when applying for a bank loan. The bank uses this document to analyze the overall feasibility, risks, financial viability, and potential of a project. Also, a well-crafted and convincing project report increases the chances of loan approval. With Finline you can craft a compelling project report in less than 10 minutes. That too in your language. All public and private sector banks working in India accept our reports. Click to create your project report.

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Step by Step Procedure to avail PMEGP Loan and Subsidy

PMEGP is implemented by the Khadi and Village Industries Commission (KVIC) functioning as the nodal agency at the national level. At the state level, the scheme is implemented through State KVIC Directorates, State Khadi and Village Industries Boards (KVIBs), District Industries Centers (DICs) and banks. Here’s the step-by-step guide to avail PMEGP loan and subsidy:

1. Conceive a business idea to start a new enterprise in the manufacturing or service sector.

2. Identify a suitable location, building, plant & machinery etc. for your venture.

3. Make a Project Report/ Business Plan, so that you can enter the details in the application.

4. Apply online through www.kviconline.gov.in

5. Participate in the interview by DLTFC (District Level Task Force Committee) who will evaluate your project and if found eligible, will forward it to the banks concerned.

6. Contact the bank with relevant documents and convince them about the potential of the project, so that they will sanction the loan and you have to deposit the beneficiary’s contribution.

7. You have to attend a mandatory EDP training (FREE) for 10 days.

8. You will get the subsidy/ margin money on the production of the training certificate at the bank. The company will keep the subsidy amount in a TDR (Term Deposit Receipt) for 3 years.

9. The subsidy will be credited to your account only after three years of the first disbursement, after ensuring the unit is still working. Still, you don’t need to pay interest on this amount from the receipt of the subsidy.

General category 15%(Urban), 25%(Rural), Special 25%(Urban), 35%(Rural)
(including SC/ ST/ OBC/ Minorities/Women, Ex-servicemen, Physically handicapped, NER, Hill and Border areas, etc.)

PMEGP in Detail

The Government of India introduced this scheme in 2008. The nodal agency of the scheme is the Khadi and Village Industries Commission (KVIC). At the State level, State KVIC Directorates, State Khadi and Village Industries Boards (KVIBs), and District Industries Centres (DICs) will implement the Scheme.

The objective of the Scheme

The main objective of the scheme is to generate employment opportunities in rural as well as urban areas of the country through the setting up of new self-employment ventures/ projects/ micro enterprises.

Eligibility Conditions of Beneficiaries:
  1. Any individual, above 18 years of age
  2. There will be no income ceiling for assistance in setting up projects under PMEGP.
  3. For setting up a project costing above Rs.10 lakh in the manufacturing sector and above Rs. 5 lahks in the business /service sector, the beneficiaries should possess at least VIII standard pass educational qualification.
  4. Assistance under the Scheme is available only for new projects sanctioned specifically under the PMEGP.
  5. Self Help Groups (including those belonging to BPL provided that they have not availed of benefits under any other Scheme) are also eligible for assistance under PMEGP.
  6. Institutions registered under Societies Registration Act,1860;
  7. Production Co-operative Societies, and Charitable Trusts.
  8. Existing Units (under PMRY, REGP or any other scheme of the Government of India or State Government) and the units that have already availed of Government Subsidy under any other scheme of the Government of India or State Government are not eligible.
Rate of Subsidy (of project cost)
  • Location of Enterprise General Category Special Category
  • Urban 15 % 25 %
  • Rural 25 % 35 %
  • Special Category – SC, ST, OBC, Women, Minorities, Ex-Servicemen, Physically challenged, NER, Hill and Boarder areas etc.
Beneficiery’s Contribution:
  • General Category- 10 %
  • Special category- 5 %
  • The maximum cost of the project/unit admissible under the manufacturing sector is Rs. 25 lakh.
  • The maximum cost of the project/unit admissible under the business/service sector is Rs. 10 lakh. Banks will provide the balance amount of the total project cost as a term loan.
Bank Finance

The Bank will sanction 90 % of the project cost in the case of the General Category of the Beneficiary /institution and 95% in the case of the special category of the beneficiary/institution, and disburse the full amount suitably for the setting up of the project.

  • The bank will finance Capital Expenditure in the form of a Term Loan and Working Capital in the form of cash credit ghostwriting.
  • Negative List of Activities
  • The following list of activities will not be permitted under PMEGP for setting up of micro-enterprises/ projects /units.
    • Any industry/ business connected with Meat(slaughtered), i.e. processing, canning and/or serving items made of it as food, production/manufacturing or sale of intoxicant items like Beedi/Pan/ Cigar/Cigarette etc., any Hotel or Dhaba or sales outlet serving liquor, preparation/producing tobacco as raw materials, tapping of toddy for sale.
    • Any industry/business connected with the cultivation of crops/plantations like Tea, Coffee, Rubber etc. sericulture (Cocoon rearing), Horticulture, and Floriculture. Value addition under these will be allowed under PMEGP
    • Any industry/business connected with Animal Husbandry like Pisciculture, Piggery, Poultry, etc.
    • Manufacturing of Polythene carry bags of less than 20 microns thickness and manufacture of carry bags or containers made of recycled plastic for storing, carrying, dispensing or ghostwriter agentur packaging of foodstuff and any other item which causes environmental problems.
About Finline!

Finline is an online platform for creating financial reports for getting bank loans and investments. It’s like ‘Canva’ but for financials. If you are an entrepreneur looking for a bank loan, you need to have a well-crafted project report. We, at Finline help you with that. Our team will help you create a powerful business plan in ten minutes. That too in your language. Also, our reports are accepted by all public and private sector banks working in India. Click to create your report.

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Project Report Tool for Financial Professionals

Perfect project report tool for Chartered Accountants, Company Secretary, Tax consultants, Advocates/Attorneys.

Finline is the first online platform tool to create project reports for bank loans. With Finline professionals can create a perfect report within a very short time. The application will help create a company profile, business profile (we provide sample content), and financial projections more easily. While inputting the financial fields, the application will automatically create the profit and loss, cash flow, and balance sheet for certain years in the future. At the same time, the application will provide the financial ratios based on the financial sheets and suggest the firm’s viability in the long run.

Important ratios covered in inline report are DSCR, Current ratio, Quick ratio,Interest coverage ratio, Debt equity ratio,TOL/TNW , Return On Capital Employed, Net profit Sales Percentage, Gross profit Sales Percentage, BEP in % of installed capacity, BEP in sales.

Major sections in Finline reports are as follows

  • Project at a glance
  • Feasibility Ratio of the project
  • Project Feasibility graph
  • Introduction
  • Scope of the project
  • Promoter(s) details
  • Location, Land, Building & Utilities
  • Product/services & process
  • Raw materials / Consumables
  • Plant & machinery/equipment
  • Market Potential & Strategy
  • Manpower requirements
  • Project Cost
  • Working Capital Computation
  • Annual Sales / Revenue
  • Total Monthly Expense
  • Application of Fund
  • Means of Finance
  • Profitability Statement
  • Cash flow statement
  • Balance sheet
  • Repayment of Term loan
  • Debt Service Coverage Ratio
  • Depreciation
  • Break Even Point
  • Assumption
  • Conclusion

SEE IF THE FINLINE IS RIGHT FOR YOU

  • Pricing as low as Rs.688 / report
  • Reduce your time spent on report writing
  • Ratios and projections included automatically
  • Beautiful, dynamic reports for printing
  • Sample text contents to use
  • Save, duplicate any number of reports
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  • Transform your business processes
  • Provide comprehensive action-based analytics
  • Maximize your ROI
  • Boost your workflow
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  • Let your business scale up at any time
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