Credit Wisdom

Understanding Business Loans

Category: Business Loan

Business loans are those which are given to a self-employed individual or an entity in order to help expand or sustain their operations. By their nature, business loans are unsecured, which means that they do not need any security, collateral or guarantor.

Business loans are provided completely on the basis of the sustainability and the profitability of the business, trade, factory and plant that you are investing in. Business loans are quite different from mortgage loans or loans against machinery which require some security or involve collateral. Each of them falls in a different category of loans and hence is dealt with in a separate manner by banks.

In the case of unsecured business loans:
  • You will be judged on the basis of different criteria, revenues and profitability being the most important of them all. 
  • The basic criterion is your ability to pay back the loan amount along with interest.
  • They check your eligibility based on their calculator for business loan in order to make sure if you have the appropriate credentials to get a business loan from any of their partner banks.
A lot of private lenders in the market would be willing to lend to you the desired sum of money if you own a shop, factory, plant or are a trader, merchant, business owner or also if you are a successful mechanic, plumber, craftsman etc.

Every bank has a section on EMI calculator for business loan, which is based on the monthly outflow when a business loan is taken from a bank. You would also be provided with the list of documents required for business loan.

These days, with a number of banks ready to give to business loans, you have an option to go ahead and compare business loan rates that are offered by them and chose the one that is the best deal for you.

When we talk about the term ‘Interest rate, it is the extra payment you have to make to the bank or a lender over and above the principal amount, which you take as loan. You can also call it the compensation for taking money from the bank for your use. You are paying them back for availing the service they provide you. And for the risk they take by giving you the money.

Interest rate is usually calculated as a percentage on the principal amount calculated for specific periods, which could be a month or a year.

are the payment you have to make every month to the lender to repay a loan. This includes part of the principal amount borrowed and a part of the interest.

There are various methods of calculating interest rate based on the lending entity as well as the type of loan. Normally interest rates are lower for secure loans like mortgaging, home, vehicle or LAP loans because the lender has a security if you default. Unsecure ones like personal or business loans have higher interest rates due to the inherent risk in them.

Tags: Business Loan Articles