Everything About Business Loan Explained-Interest Rate to Tax Deduction

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Business loans represent a thriving segment in the banking and financial services industry in India. Business loans are offered by several financial institutions with varying terms and conditions. Business loans are highly preferred options for financing business requirements. Business loan interest rates usually vary from one lender to another. Business loans can be taken for smaller amounts of Rs. 50-75, 000 and can go up to Rs. 75 lakhs or so. These loan applications are processed swiftly and there is minimal documentation for the same. Business loans also offer ample flexibility in terms of repayment.

There are unsecured business loans which help companies take care of financial requirements and the loans can be repaid through convenient monthly EMIs. These can be regular business loans or working capital loans which take care of immediate operational and other expenses of businesses. The interest rates on business loans should be compared carefully before choosing one’s lender. If required, an online business loan interest rates calculator can be used to work out the implications in terms of the monthly EMI. These unsecured loans do not require any collateral whatsoever and there are pre-approved loans offered by some lenders as well.

When it comes to eligibility for business loans, self-employed professionals can apply and this category includes company secretaries, engineers, doctors, chartered accountants, architects and the like. There should be proof of their qualification and other details furnished in order to get the loan sanctioned in these cases. Manufacturers, traders, retailers, partnerships, private limited companies, limited liability partnerships and closely held limited companies are also eligible to apply. Applicants should fulfill the minimum turnover criteria and should have the right number of years in terms of business experience. There should be sustainable revenues and profits along with a minimum ITR threshold that has to be satisfied. The applicant also has to meet the age criteria.

There are several documents that may be required for business loans. These may include the individual/company PAN Card, ID and address proof (Aadhar/Passport/Voter Card/Driving License), latest ITR along with income computation, P&L account statements. Balance sheet, bank statements and proof of continuation of business (ITR/Sales Tax Certificate/Trade License). All financial documents must be certified/audited by a chartered accountant. There should also be a partnership/proprietorship declaration copy along with true copy of articles of association/memorandum along with other documents as required by the financial institution.

On an average, business loan interest rates range between 17-22% though this depends on several factors like the CIBIL score and credit history, business financials, monthly revenues and so on. There are a few business loans that come with collateral requirements as well. In terms of tax saving, you should know that the interest that is paid on the business loan is always deductible. There will be tax benefits on the interest on the loan amount paid in a financial year. This will be deducted from the company’s gross income, thereby helping the organization save on taxes. Also, the taxable income of the business is lowered through the deduction of necessary business expenses for generating revenues. These expenses are deducted from revenues prior to working out the taxable income.