One type of business loan that MSMEs typically look for is a business instalment loan, which helps them get through temporary financial difficulties. These loans have preset payback terms and instalment schedules. The duration may be as short as a few months or as long as five years. Since the loans are granted based on the customer’s credit standing, no security or collateral is needed.
Small and micro businesses, as well as professionals wishing to launch their practices, can benefit from this loan since they would not be able to offer any sizable assets as collateral but can still demonstrate a significant annual turnover.
In this blog post, we will learn the meaning of a business instalment loan, its key features, benefits, documents required to obtain it, eligibility criteria, fees, and much more.
What is Business Instalment Loan?
A business instalment loan is a type of financing in which a business borrows a lump sum. It repays it over a set term in regular, fixed instalments that include both principal and interest. This loan is typically used for purposes like purchasing raw materials, real estate, or managing day-to-day operational expenses.
Now, let us understand its key features to know more about it.
Key Features of Business Instalment Loan
Age in Business: The company should be at least three years old.
Tenure of Repayment: These are short-term loans. The loan term is typically one year with a five-year maximum. The bank could extend this, though, at its discretion and in exchange for customer loyalty. After a year of timely loan instalment payment, prepayment of the loan is permitted with a small amount of prepayment fees.
Interest Rate: Due to the high level of risk involved, these loans typically have high interest rates. Currently, business instalment loans have an interest rate between 15% and 25%.
Loan Amount: The loan amount is determined by several factors. The instalment lender considers the credit rating, turnover history, industry performance, management calibre, company competence, business model viability, and other comparable factors. Loans ranging from Rs. 10 lakhs to Rs. 125 lakhs are available these days.
Benefits of Business Instalment Loan
Here are some of the benefits of a business instalment loan:-
- Easy and quick loan processing with fewer documentation requirements
- Following the finances is made easier by fixed terms and EMIs.
- No security or collateral is needed.
- Better instalment credit standing allows borrowers to get larger loan amounts.
- Apply for MSME Loan through Indifi
- The loan can be used for existing unit expansion and modernization, asset building and acquisition, and working capital requirements.
Documents Required to Apply of Business Instalment Loan
In order to avail of the benefits mentioned above, there are some documents, eligibility criteria, and fees that one needs to follow, which are mentioned below:-
- Records about entity establishment, identity, and address verification.
- Twelve-month GST returns for the computation of turnover.
- The most recent two-year annual return includes income tax returns, the balance sheet, and the profit and loss (P&L) statement.
- Bank Statements from the previous six months.
- Other documents demanded by the lender.
Eligible Criteria For Business Instalment Loan
- Limited liability partnership firms, Private Limited Companies (including closely held limited companies) and Sole Proprietorship entity are eligible for this loan.
- Business with a minimum of 1 years of experience.
- Business Turnover should be INR 20 lakhs.
Term Loan with Indifi
One of the most crucial things for businesses is having access to affordable financing whenever they need it. There are several reasons why this requirement might arise.
Physical capital may need to be invested in by the company, or it may be necessary for effective working capital management. Also, It may even require money to pay off debt that has already been incurred. Availability of a term loan can be the best solution during these circumstances. Term loans include business instalment loans, MSME loans, and overdraft loans. One must be aware about the difference between Overdraft Loan and Term Loan.
Getting a term loan from a financial institution like Indifi is one of the most popular ways for any size business to raise capital. Indifi provides loans at lower interest rates that start from 1.5% p.a. You can get a loan of upto a maximum amount of 50 lakhs with 4% processing fees.
Do not miss the chance and get business loans from Indifi to strengthen your financial capacity and build wealth for your business!
Key Takeaway
A business instalment loan is an incredibly practical source of funding for small and medium-sized businesses. It allows them to obtain short-term capital without requiring any collateral or security. Therefore, leverage the benefits of a business instalment loan and gain new heights in your business financial performance.
FAQs
- What drawbacks are there to business instalment loans?
A major disadvantage of obtaining a business instalment loan is the possibility of paying exorbitant interest rates. The total cost of borrowing may go up if loans have higher interest rates and longer durations. Borrowing money for a business also carries the risk of default.
- What is the duration needed for a business instalment loan?
The loan processing and disbursement process will require a minimum of 7 working days after all necessary documents and information have been submitted, subject to the bank’s requirements. The bank has the final say over whether or not to approve any loan.
- What is a long-term business instalment loan?
Each business instalment loan has a term, or the amount of time you have to pay it back in full. Loan durations range widely, from 1 year to 5 years. Loans with a tenure of 5 years can be termed long-term loans.