Business owners need additional funds to start and expand their business. This is when they consider taking a business loan to fulfill their requirement. These loans are significant in providing entrepreneurs with the necessary funds to grow their businesses. Moreover, it helps them achieve their company’s objectives. Sometimes you may wonder how these business loans are disbursed. So here you can understand how business loans are disbursed by highlighting each step involved. You can also learn about the types of loans and disbursement process here.
What are business loans?
Banks and NBFCs extend business loans to retail business proprietors to address various company expenditures. These expenses involve working capital, real estate acquisitions, marketing endeavors and expansion initiatives. Nonetheless, entrepreneurs are obligated to repay the loan amount disbursed through the business loan process. This is similar to other loan categories along with accrued interest to the lender.
Business loans emerge as the optimal option for entrepreneurs due to many advantages including the following.
- Immediate capital
Business loans enable businesses to acquire financing quickly through an online application procedure.
- Nominal interest rates
Business loans have low and appealing interest rates to prevent putting the borrower in debt.
- No collateral
You do not have to pledge assets as security to qualify for a business loan. However the perks listed above are available when the lender successfully meets the requirements for a business loan. As a result, understanding the procedure of disbursing a company loan is critical.
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Business loan disbursement process
The lender will begin the disbursement procedure to qualify for a business loan. This business loan disbursement process includes the following steps.
- Setting up a business account: Before the disbursement of funds, it is necessary to establish a business account with the lender or ensure that your current business account is prepared to receive the loan proceeds.
- fund transfer: Before the funds can be disbursed, it’s essential to either set up a business account with the lender or ensure that your existing business account is ready to receive the loan proceeds.
- Availability of funds: Following the transfer, there may be a brief waiting period before the funds become available in your account, usually within a few business days. This waiting period enables the bank to process and clear the transaction.
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Types of loan disbursement
1. Full disbursement
Here the lenders conduct business loan same day disbursement of the entire loan amount. It is disbursed to you at once and it resembles a lump sum payment. A typical instance is a fixed-amount personal loan where the lender transfers the entire sum directly into your account once sanctioned.
2. Partial disbursement
In this scenario, the loan amount is segmented into smaller portions, with each portion disbursed as you fulfil particular criteria, such as project milestones or academic terms. This method is commonly employed for home construction loans or student loans.
3. Direct payment disbursement
In student loans, lenders may opt to disburse funds directly to the educational institution or service provider. This measure helps ensure that the funds are utilized for their designated purpose.
Types of business loans in India
Term loans
Term loans are a common type of business financing in India. They give the borrower a substantial sum of money that is returned over a certain period in monthly instalments.
Working capital loans
Working capital loans are intended to support the short-term operating demands of a firm. They fund day-to-day expenses including inventory purchases, salary payments, and administrative costs.
Small business administration loans
SBA loans are government-backed loans for small enterprises in India. The Small Business Administration guarantees a percentage of the loan amount, decreasing risk for lenders and making it simpler for small firms to get funding.
Equipment financing loans
Equipment finance loans are designed exclusively for acquiring or leasing equipment. Businesses in industries like manufacturing, construction, and healthcare sometimes require expensive machinery or technology to function.
Invoice financing
Invoice finance, also known as accounts receivable financing, enables firms to borrow money against outstanding invoices. This form of loan improves cash flow by allowing instant access to funds that would otherwise be held in outstanding bills.
Business line of credit
A business line of credit, like a credit card, provides firms with a fixed credit limit. Borrowers can take cash as needed, up to the allowed limit, and repay the borrowed amount at interest.
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Business loan eligibility criteria
Evaluating the borrower’s eligibility and creditworthiness, which includes assessing their CIBIL score, forms an integral part of the loan disbursement process. Factors such as the business’s age, turnover, credit history, collateral, financial statements, purpose of the loan, and GST registration also influence the loan disbursement.
Furthermore, the business loan disbursement process is impacted by the lender’s documentation requirements and the time taken to review them. Before applying for a loan, entrepreneurs should thoroughly research the loan terms and CIBIL score criteria set by various lenders.
It’s crucial to understand that the requirements and conditions of each loan will vary depending on the lender and the loan type. Business owners must conduct diligent research to compare the terms and conditions of different loans and identify the most suitable option for their requirements.
Conclusion
Acquiring a business loan can become a straightforward endeavor with a comprehensive grasp of the loan disbursement process. Entrepreneurs are empowered to make informed decisions by acquainting themselves with various types of business loans, the eligibility criteria, and the customary steps involved in loan disbursement.
In order to secure the most suitable loan for your business, it’s imperative to explore diverse loan options, conduct thorough comparisons of terms and conditions, and comprehend the interest rates and repayment terms. By adhering to the guidelines outlined in this manual, you can ensure a seamless and expeditious loan disbursement process, thereby providing your business with the necessary capital to foster its growth.
