Business Loan – Frequently Asked Questions Answered
Understanding business loans can be tricky, but we're here to help. Our guide answers the most common questions about business loans, from eligibility and loan types to interest rates and repayment options. Whether you're starting a new business or looking to grow an existing one, this guide will help you find the right loan and make the process easier.
Also Read: Everything you need to know about Business Loans – A definitive guide
1. What are some small business ideas?
Small business also known as MSMEs are the pioneers of development in the country. Various regions are developed with the help of small businesses employing people and using community resources to meet demand. Here are some of the small business ideas that will help you be successful:
- Food Catering/Tiffin Service
- Cloud Kitchen
- Candle Making
- Tuitions
- Bakery
- Grocery Store
- Baby Sitting
- Salon/Spa
- Photography
- Event Management
- Marketing Agency
Also Read: Top Successful MSME Businesses in India (2024)
2. What are some tips for start-ups?
If you have a business idea and want to start a small business, you first need courage and willingness to take up calculated risks. Then draw up a business plan and study the market related to the business you wish to start. Consider taking a business loan for financial assistance and working capital needs. Some of the best business loan options are loan against property which offers you the convenience of a longer repayment period, continued use of the hypothecated property, low interest rates, and higher loan amount.
3. What's an SME?
Small and Medium Enterprises are known as SMEs. A business is considered a small business when its investment amount ranges from Rs. 1 crore to Rs. 10 crores. Its turnover is between Rs. 5 crores to Rs.50 crore. Moreover, a business is considered a medium enterprise when its investment exceeds Rs. 50 crore and it has a turnover of not more than Rs. 250 crores.
4. What is the importance of SMEs?
Small and Medium Enterprises (SMEs) are crucial for a country's economic growth. These businesses are responsible for meeting people's everyday needs and providing employment. They are flexible and often responsible for innovation and creativity in terms of goods and services. SMEs create a healthier business environment by keeping a balance in competition. According to the Ministry of Micro, Small & Medium Enterprises, India has more than 7.9 million MSMEs as of March 27, 2022.
5. What are the most important needs of a SME?
One of the most important needs of a Small and Medium Enterprise is finance. With everyday expenditure and investment in a business, SMEs generally need more money for the upkeep of their business. Moreover, effective managerial skills are very important for SMEs. Proper management of resources, finance, employees, and administration is crucial to an SMEs growth and development.
6. What's the difference between startup and a small business?
A startup starts in a small way with dreams of changing or introducing a new market altogether. The founders may alter existing business models or create new ones. On the other hand, small businesses or SMEs are businesses that follow an already established business model and may trade in products and services already in the market. Small and medium enterprise owners look to gain profit by providing quality products and services and eventually setting up their brand and space in the market.
Also Read: Guidebook: Different Types of Business Loans in India
7. What problems/questions do small businesses and medium-sized companies have regarding running and improving their business?
A small business mainly faces problems with finances, hiring the right talent, and unnecessary expenditures. If you have a small business or medium enterprise, you require a strong vision and goals set in stone. Hiring employees who may meet the needs of the business requires proper planning from your end. You need to be clear with business objectives and draw a funding plan. Unnecessary expenses may be an issue if a proper business plan is not in place. Make a well-researched business plan, including business strategies for accounting and expenditure. This will help you grow your business. If required, look out for best business loan options that offer the maximum flexibility.
Also Read: How to Get a Business Loan for Better Cash Flow
8. How can small business and medium enterprises in India help in the development of the country?
Small and medium businesses have already helped develop India's economy by contributing to the GDP and more. Micro, Small and Medium Enterprises (MSMEs) contribute 30% of India's GDP and are responsible for 50% of the exports. They are also why small businesses and employment opportunities exist in rural and semi-urban areas. They provide employment opportunities in these areas and help their development and growth.
9. What are the advantages of a small business and medium entrepreneur?
Being a small business or MSME has many advantages. First, with the increasing opportunities and advancing technology, small and medium businesses have a new scope for market expansion. Internet and digital marketing have enabled small businesses to create a brand presence nationwide and worldwide. Secondly, having a small business offers flexibility and adaptability to change. If a small business notices a change in demand, it can adapt to change faster by reducing the supply. Lastly, small businesses have fewer employees working, making communication easier and faster.
Also Read: Flexibility of Repayment in Business Loans
10. If a factory needs a business loan for expansion, what is the step-by-step process for it?
If you require a business loan for your small business or factory, consider following the steps mentioned below:
- Step 1: Choose to apply for a business loan online with a financial institution of your choice.
- Step 2: Submit the documents required by your bank or financial institution.
- Step 3: Once all the documents are submitted for processing, a representative from the concerned financial institution may contact you regarding your loan eligibility.
- Step 4: Once all your eligibility documents are submitted and approved and the loan amount is sanctioned, you can access the business loan.
Borrowers can check their eligibility using a business loan eligibility calculator to assess their creditworthiness.
11. Is it good that I paid off a business loan early? Will I be eligible for a higher loan?
Will I be eligible for a higher loan? Being eligible for a higher loan on prepayment may be a decision your bank or financial institution may take. However, some aspects to note are that you will save a lot of money on your monthly interest payment. Moreover, banks and financial institutions also apply prepayment charges if you pay back the loan before the tenure ends. This is because some loans are designed to last for a particular repayment period. Always consult your bank or financial institution when deciding and read your loan documents carefully.
Borrowers can also check their payable EMI using an EMI calculator to before they apply for a business loan.
12. What are the benefits of taking a Business Loan? How can you get maximum profit by paying less amount as the interest rate on that loan?
Taking a business loan has many advantages. You can get money to meet your working capital needs, hire more employees, expand your business or even purchase a property. The interest rate depends on the bank or financial institution you will connect with. A Loan Against Property for business is one of the best business loans with low interest rates. You can gain maximum profit by paying a low interest rate and saving on your monthly outgoings.
Also Read: How to Get a Business Loan Without Collateral in India?
13. What is a Mudra loan, and how does a customer apply?
The Pradhan Mantri Mudra Yojana (PMMY) is a government scheme that allows borrowers to obtain business loans from banks, MFIs, and NBFCs for up to Rs. 10 lakhs for non-farm income-generating enterprises. Generally, bank loans up to Rs. 10 lakhs made under the Micro Small Enterprises programme are given without collateral. Here are the steps to apply for Mudra Loan:
- Check out the PMMY-sanctioned banks and financial institutions.
- Choose any one and visit their website
- Download the form for loans like Shishu, Kishore, and Tarun
- Submit the relevant details in the Mudra Loan Application form
- Submit the relevant documents
- Once processed and sanctioned, you will receive the loan If you wish to apply offline, follow the steps mentioned below:
- Visit the PMMY-sanctioned financial institution or bank
- Make sure to prepare a good business plan before visiting the bank
- Fill out the Mudra Loan application form
- Submit the required documents and passport-size photographs
- Once your loan documents are processed and approved, you will receive the loan
Also Read: Mudra Loan: Government Scheme for Business Loans
Starting a small business is a courageous step towards fulfilling your entrepreneurial dreams. With the right idea, passion, and determination, you can overcome challenges and succeed in the competitive market. Small and Medium Enterprises (SMEs) play a crucial role in driving economic growth, providing employment opportunities, and fostering innovation. By understanding the needs and challenges of SMEs, aspiring entrepreneurs can better prepare themselves for the journey ahead. Lenders such as Godrej Capital offer Business Loans, Loan Against Property, and Udyog Loan Against Property, empowering businesses to grow without financial constraints. Remember, every successful business started with a single idea and a leap of faith. So, if you have a business idea burning within you, don't wait any longer—take the first step towards making it a reality.
Businesses looking for capital to fulfil their business goals can apply for a loan here. If you’re looking to read and understand more about business loans, visit our Knowledge Centre here.
Related FAQs
- What do you mean by small business?
In India, a small business, or SME, is classified based on its annual revenue and investment in equipment or machinery, as defined by government regulations.
- How to start a business?
To start a business, identify your business idea, create a solid business plan, register your company, and secure necessary funding. Follow this with setting up your operations and marketing your products or services.
- What is the easiest business to start?
The easiest business to start is often one that requires low investment, such as an online store, freelancing, or a service-based business like tutoring or consulting. However, any business with a good plan and proper investment can be easy to start and succeed.
- What type of business is small?
A small type of business typically includes local shops, restaurants, service providers like salons, freelance work, and small-scale manufacturing units - usually the ones that generate annual revenue and require investment.
- How to start a MSME?
To start an MSME (Micro, Small, and Medium Enterprise) in India, first develop a clear business plan and set up your operations. Next, register your business for an MSME certificate through the Udyam Registration portal. This registration provides access to various benefits, such as subsidies and easier credit facilities.
Disclaimer:
The contents of this article are for information purposes only & not a financial advisory. For more details, please refer to the product or service document and/ or connect with our customer representative prior to making any financial decision. The information is subject to update, completion, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.
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