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Business Loan - What is a Business Loan?

11-29-2022 04:38 PM CET | Business, Economy, Finances, Banking & Insurance

Press release from: Kinara Capital

Business Loans are funds available to all types of businesses from banks, non-banking financial companies (NBFCs), or other financial institutions. Business Loans can be tailor-made to meet the specific needs of growing small and large businesses. These loans offer your business the opportunity to scale up and give it the cutting-edge necessary for success in today's competitive world.

Business Loans for the micro-small-medium enterprise (MSME) sector in India are particularly important as MSMEs are important economic drivers of growth, and job creation, which directly impacts local economies. Lack of access to formal finance, the requirement of property collateral for loans, and the lack of affordability for modern technology solutions are some of the impediments hampering the growth of the MSME sector.

Although the Government of India has introduced several MSME loans and MSME funding schemes to resolve the financing gap for MSMEs, the need outweighs the solution. India has the second largest MSME sector in the world with 63 million MSMEs, of which, many are still informal. Nearly 80% of the MSMEs (more than 50 million enterprises) lack access to formal lending channels, according to a report from the Association of Chartered Certified Accountants (ACCA).

Providing access to formal credit is where many NBFCs such as Kinara Capital support MSMEs in their growth journey. Therefore, unsecured business loans from Kinara are a very good source of financing for MSMEs.

Types of Business Loans

Business finances may seem very tricky at times, especially in today's competitive environment. As a business owner, you may wonder about the best possible option to fund your various business needs including purchasing assets such as land, leasing a shop or factory, purchasing new machinery, working capital requirements, or basic operations expenses such as overheads and salaries. However, Business Loans can be broadly divided into 2 types, which are explained below.

Secured Business Loans:

Secured business loans are a popular source of capital for small firms. A personal guarantee or the pledge of assets or property as security is used to secure this sort of loan. The use of the collateral is thought to be a means by which you can reassure the lender that you will return the loan within the time frame laid forth in the loan agreement. Implicitly, it also suggests that in case you couldn't repay the loan amount on time, the lender has all the rights to seize the collateral. There are two types of Secured Business Loans that are "Secured by Collateral" and "Secured by Personal Guarantee".

Secured by Collateral - This type of secured business loan includes pledging a Property Mortgage, Government Securities, Savings Account, Fixed Deposit Certificates, Gold and other precious metals.

Secured by Guarantee - Secured Loans are also provided on the basis of the guarantee. You can use your or your partner's possessions, such as gold, real estate, or other assets as collateral in this situation.

Unsecured Business Loan/Collateral-free Business Loans


An Unsecured Business Loan is based purely on your business creditworthiness rather than collateral or guarantees. It determines your income, financial papers, and other relevant factors. Unsecured loans are beneficial to your business for various purposes that include business expansion, equipment purchases, inventory management, and many more.

Kinara Capital offers small business owners fast & flexible loans from ₹1 lakh to ₹30 lakhs available within 24 hours. With its mobile-first approach, the company's myKinara App is available in vernacular languages. Any registered MSMEs from manufacturing, trading, and services sectors that need funding for their growth can opt for unsecured or collateral-free business loans from Kinara Capital.

Business loans can further be divided into 5 types based on the nature of the loan.

Working Capital Loans:

Working capital loans are taken to overcome the shortage of funds to operate a business on a day-to-day basis. It helps you in fulfilling various business expansion services like enhancing business cash flow, purchasing raw materials, addition in inventory/stock, paying salaries, hiring staff, etc.

Kinara's working capital loans are business loans with a loan amount up to Rs. 1 lakhs to Rs. 30 lakhs, wherein the repayment tenure can range from 12 to 60 months, and interest rates are between 21% to 30% per annum.

If you are an existing customer of Kinara, you can also be eligible for flexible short-term working capital loans to meet your immediate capital needs. These loans have smaller ticket sizes starting from 50 thousand to 2 Lakhs. The loan amount can be from 50,000, 75,000, 1 lakh, 1.25 lakh, 1.50 lakh, and 2 lakh.

Short-term loans are granted for a duration of six to twelve months to finance working capital and limited capital requirements. For existing customers who borrow 50,000, the loan tenure will be 6 months. The tenure for customers borrowing 75,000 will be 9 months, and 12 months if it is 1 lakh or above.

Invoice Financing or Bill Discounting

Invoice Financing is also called Bill Discounting or Invoice Factoring. This kind of funding is especially for small businesses that experience a time lag between raising invoices and receiving customer payments. The lender provides funds against the invoice amount. The lender can finance up to 80% of the invoice amount. The loan amount is cleared once the business receives the payment.

Equipment Finance or Machinery Loans:

Equipment finance or machinery loan is a funding option offered to purchase new equipment/machinery or upgrade/repair the existing one. If you are into large businesses or in the manufacturing sector, you may frequently use equipment financing. Businesses that borrow money for machinery or equipment also gain tax benefits. The interest rate charged by Kinara for a machinery loan is 21% to 30% p.a. The loan amount is up to Rs. 1 lakhs Rs. 30 lakhs and the repayment tenure can range from 12 to 60 months.

Loans for Women Business Owners

Women owners are majorly responsible for improved economic growth and stability in India. According to the 6th economic census by the Ministry of Statistics and Programme Implementation, women-owned businesses comprise 13.76% of the total in India, which is 8.05 million out of the total 58.5 million owners.

Women owners also inspire other women to start businesses like them. This creates more jobs for women, which ultimately helps in reducing the workplace gender gap. Encouraging women owners is vital as their participation has a direct bearing on improving the standard of living and allows them more social independence that brings about better outcomes at the community level.

HerVikas Loan from Kinara Capital is a special business loan for women owners. If you are a woman business owner, this loan will help you pursue your dream and empower you to grow and create a positive multi-generational impact in the community.

Women MSME business owners engaged in the manufacturing, trading and service sector can avail of a 1% discount upfront under HerVikas program to take their businesses to the next level with no additional documentation required. The advantages of specialised loans for women entrepreneurs include flexible loan amounts, discounts on standard interest rates, and a faster loan process.

Business Credit Card

A business credit card may not be the very first option you choose to finance your business needs, but it is still useful for short-term and immediate financial requirements. If the business owner is in need of fast cash and at the same time wants to enter rewards against payment done on debts, then a business credit card can be the right option. However, the interest rates could be higher than traditional business loans.

It is advisable to opt for a business loan based on your business requirements. The information provided above will help you decide the type of business loan best suited for your venture.

CTA: Grow your MSME with collateral-free business loans

Benefits of Business Loans:

MSMEs have relied extensively on loan sharks and other private sources for business loans. Therefore, NBFCs like Kinara Capital have transformed access to credit and changed the face of MSME lending in India. Here are a few benefits of taking a business loan from NBFCs.

No Need for Collateral

Many NBFCs offer unsecured business loans allowing applicants to avail a business loan without property collateral. Not having to give up any assets for financial credit, the borrowers not only receive financial independence but also get much more flexibility while handling their business operations.

Flexible Eligibility Criteria

Generally, banks have stringent lending criteria for approving a business loan. The process includes towering documentation to sanction the loan amount. Banks also seek a higher credit score, business experience, and annual turnover. The whole process can be tedious and takes a lot of your time and energy.

Comparatively, NBFCs have fewer stringent procedures for loan applications. They take a flexible approach to providing their customers with the required financing because they assess creditworthiness based on multiple factors. For example, not all NBFCs require GST, collateral, or extensive KYC documentation. It is important that you as a business owner should seek out regulated NBFCs that are registered with the Reserve Bank of India (RBI).

Digital Loan Disbursal Process

Fintech NBFCs like Kinara Capital offer 100% paperless business loans using digital platforms. You don't need to leave your home or offices to seek funding from these fintech companies. You can simply visit the financial company's website, like kinaracapital.com or download myKinara App on your smartphone and apply for an online business loan. You can upload a copy of the required documents, and they can disburse the money to your bank account within 24-hours once it is approved. A timely business loan can instantly expand your marketing potential, speed up your operations, and increase your profit margins. On the contrary, most banks still follow the traditional method, which will require you to provide a paper copy of the document and physically witness the branch for confirmation. This process takes excess time and effort, which you could otherwise have spent on running your business.

Improve Credit Score

Taking out a business loan can also improve the creditworthiness of your business. However, you will need to make timely payments and repay the loan within its term to see your credit score improve. In the future, this can help you get more financing at lower business loan interest rates.

Eligibility Criteria for a Business Loan

Before applying for Business Loans from Kinara Capital, make sure you meet the prerequisite requirements listed below:

The business should be part of the manufacturing, trading or services MSME sectors.
The pin code should be one where Kinara Capital is already offering services.
Total monthly turnover should be greater than Rs. 50,000 and less than Rs. 2 crores.
The business should fall under the list of sectors and sub-sectors serviced by Kinara.

How to Calculate Business Loan EMI?

One of the most crucial factors to take into account when considering whether to take out a Business Loan is the EMI amount. As an MSME owner, you can only make an informed decision and successfully service a loan if you are aware of how much you will be paying each month. You can easily check expected monthly payments with the Business Loan EMI calculator from Kinara. You only need to enter the amount, term, and interest rate of the loan to instantly know your estimated monthly EMI.

Find out your EMI amount in seconds with Kinara's loan EMI calculator!

Documents Requirement for a Business Loan

With the use of AI/ML, Kinara Capital has built data-driven credit decisioning to provide fast service to small business owners. Kinara has a simple and minimal documentation process and offers the option to substitute certain documents for others based on availability. Following are the documents you need to submit to apply for business loans.

Proof Of Business Registration
You will have to provide proof of the company's existence. This may be presented as water or electricity bills, Udyam Registration, Company registration, the PAN card of your business, etc.
Proof Of Individual Identity
You need to provide your proof of identity as well. This can be fulfilled by Aadhar card, PAN card (personal), Driver's License, Passport, etc. While we recommend PAD or Aadhar, your co-applicant can instead provide Voter ID, Driver's License, or Passport.
Financial Documents
Finance-related documents such as bank statements, profit and loss accounts, balance sheets, passbooks, account statements etc. If you have GST, then you will have to submit your GST filings.
Conclusion

Business Loans are a financial tool that business owners can avail to address immediate or planned expenses. It is significant for every MSME in business expansion, deals with short-term cash flow problems, and fulfils other business requirements. It has several advantages, including no need for collateral, a hassle-free application process, minimum documentation requirement, flexible loan tenure, and much more.

Kinara Capital is a leading NBFC in India that provides fast access to credit to MSMEs. Its online business loan application process is quick and easy and can be completed either by the business owners themselves or with the help of a Kinara representative. The business loan interest rate is applied on a reducing rate basis, and the loan is disbursed quickly. myKinara App's fully digital process can go from loan decision to disbursement within 24 hours. Check the eligibility of your business in 1-minute with myKinara App or online on Kinara's website.

Kinara Capital also provides doorstep customer service, and the loan process requires minimum documentation. You can also give a missed call at 080-68264454 to talk to our in-house customer support team or you can also reach us at our toll-free number 18001032683.

FAQ,s

What is a business loan?

Business Loan is borrowed capital that is used for growing your business. Small business owners (or MSMEs) can acquire funding from NBFCs with many offerings like collateral-free business loans.

Why should you take a business loan?

You can take a business loan to fund your business investments and projects. You can quickly complete unfinished projects and see your business enterprise grow with the aid of a business loan.

Who Can Apply for a Business Loan at Kinara Capital?

Registered MSMEs that are into manufacturing for 1+ years, trading or services sectors for 2+ years can apply for Business Loans at Kinara Capital.

Are there any benefits to taking a loan from Kinara?

Yes, we provide collateral-free business loans within 24 hours. We also provide doorstep customer service and support via phone in local languages. With our myKinara App, we have a three-step quick loan application process:
1-MinuteEligibility Check,
Verification Process (KYC & Business Details),
Loan Approval & Sanctioning, that will lead to automatic Disbursement of the loan.

What are the requirements to get a business loan?

Your business should fit the business loan eligibility criteria and should be part of the manufacturing, trading, or services sector, with a monthly turnover between Rs. 50,000 and Rs. 2 crores to get a business loan. Manufacturing businesses should be at least 1 year old, and trading or services businesses should usually be 2 years old.

What are the Document Criteria for getting a Business Loan from Kinara Capital?

Business must be formally registered as an MSME in India
MSME must be compliant with Local, State and National Laws and have any requisite certification
MSME must have Udyam Registration Number
Applicant & Co-Applicant KYC
Bank Statements, Customer Invoices and Ledger may be reviewed
GST Filings, if the business has a GST registration

What is the minimum business turnover required to get a Business Loan?

A minimum of monthly INR 50,000 or more in the previous year is required.

Do I need to visit Kinara Branch to take a Business Loan?

No, you need not visit any branches. For support, you can contact us and our Field Officer will visit you at your place of business to provide information and help you with the loan application process.

How can I apply for a Business Loan online at Kinara Capital?

To apply for a business loan, start by taking the 1-minute eligibility check, click here to get started. If you clear the business loan eligibility, you can then take the loan application forward by providing personal and business documents to complete the process. One of our representatives will also reach out to you to help you with the rest of the process.

How to check my business loan status?

At the time of application, you are provided with an Application ID number. You can reach out to our call centre at the toll-free number 18001032683 on Monday to Friday 9:30 a.m. to 6:00 p.m. to know more about the status. Typically, our loan officers will reach you directly within a couple of days to provide you with an update. You may also get an SMS notification.

What are the Minimum and Maximum Loan Amounts which I can Take?

The minimum amount of loan you can take is up to Rs. 1 lakh, and the maximum amount of loan that can be availed is up to Rs. 30 Lakhs.

Can I get a Business Loan without collateral?

Kinara Capital provides collateral-free business loans. This means that you will not have to submit any property documents while applying for a loan from Kinara.

What are the Factors Affecting Business Loan EMI?

Various factors affect the business loan interest rates and EMI, such as your loan requirement vs your business turnover, type of business, industry experience, credit history, cashflow maintenance and your P&L statement.

What is Business Loan EMI?

Business loans are typically repaid in Equated Monthly Instalment (EMI). Every month, the borrower repays a portion of their principal loan amount and interest rate charges to the lender in the form of an EMI. Typically, the EMI payment date is the same every month to make it easier.

By ensuring you have the requisite cash flow to make your EMIs, you can avoid missing a payment. This approach enables you to build your credit score and increase your future opportunities to avail credit access.

Can I change my EMI due date?

No. EMI dates are determined by the lender.

Will the machine I purchase with a Business Loan get hypothecated?

Yes, in the case of Asset/Machinery Purchase Loans, the machinery you will purchase with the loan amount will be hypothecated.

How to use a Business Loan EMI Calculator?

Choosing a Business Loan is a great way to give your company the boost it requires. However, you must first figure out how much amount you will require before deciding if you can afford to pay it back. A business loan EMI calculator can aid in your decision-making by showing you the estimated amount you have to pay each month. You can use the calculator by entering the loan amount, interest rate, and loan term, then clicking "calculate." You can experiment with different permutations to get a number that works for you if you are unsure about any of the factors.

How is the reducing rate of interest calculated?

EMI on every loan that Kinara issues is computed on a reducing rate basis. The outstanding loan balance is the only factor taken into account each month when calculating a lowering interest rate or diminishing interest rate. In other words, the interest rate for the following month will only be based on the amount still owing and not the original principal amount. This gradually reduces the EMI amount you must pay and makes the repayment process simpler.

About Kinara Capital

Kinara Capital is a fast-growing fintech propelling financial inclusion of small business entrepreneurs in India. Leading with a women-majority management team, the company is globally recognized for disrupting small business lending. Qualified as a Systemically Important NBFC by the Reserve Bank of India, Kinara Capital is a debt-listed entity on the Bombay Stock Exchange (BSE). Founded in 2011 and headquartered in Bangalore, Kinara Capital today has 125 branches serving MSMEs across 100+ cities in India with a workforce of nearly 1,450 employees and growing. Visit www.kinaracapital.com for more information and follow us on Twitter @KinaraCapital.

50, Second Floor, 100 Feet Road, HAL II Stage, Indiranagar, Bengaluru, Karnataka 560038
Contact Name: Khyati Shah for Kinara Capital
Reach us at: pr@kinaracapital.com
Call us at: +91 7483491783

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