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Business loans are one of the most common lines of credit chosen by companies to fund their activities. These loans are issued by commercial banks, Microfinance Institutions, NBFCs, credit unions, etc. A good percentage of business loans applied for usually request a huge sum of money. Therefore, it is natural to ask if a company is required to give a down payment for a business loan.

Do you need a down payment for a business loan?

Some businesses who are looking for machinery loans and expansion loans apply for huge amounts in their loan applications. This might lead businesses to believe that they might have to pay a fraction of the loan amount as a business loan down payment.

Financial institutions generally don’t ask for a down payment on business loans. Usually, collateral is kept as a security for borrowed money. The collateral for an SME loan could be in the form of a mortgage on a property, stocks and bonds, etc.

Depending on the institution and your credit history, some financial institutions may ask for a down payment. Unsecured business loans usually are business loans without a down payment while a secured business loan service asking for collateral might also ask you for a down payment.

In their requirement list they will write a specific requirement, for instance, “Other liquid security as required by the bank”.

How to find the right business loan?

As mentioned earlier, business loans are issued by financial institutions like commercial banks, cooperative banks, NBFCs, etc. There are also multiple government schemes that offer small business loans to MSMEs and startups.

Before you apply for a business loan you need to ask yourself a few questions. These answers will help you choose the right kind of loan suited to your business needs.

  • What type of business loan do you want?
  • How much money are you going to request on your loan application?
  • What loan interest rate is feasible for you?
  • What is the tenure for repayment you want?
  • Are you looking for a secured or zero-collateral loan? If you are looking for a secured loan, do you have collateral?
  • How are you planning to repay the loan?
  • What is the current financial standing of your business?
  • What is your credit score?
  • Do you want a short-term or a long-term loan?

Tips to get business loans sanctioned

Business loan applications go through stringent scrutiny as every aspect of a company’s financial profile and business portfolio is put under the microscope. This is usually done to evaluate a company’s financial health and repayment capacity.

Here are a few things you can do to improve the chances of getting a small business loan sanctioned:

  • Compare different loan products from different lenders

After you choose the type of business loan according to your need, visit websites of multiple lenders and check out their loan products. Read about the loan amount, interest rates, tenure, terms and conditions, etc. Choose a loan product that matches your conditions.

  • Choose the right lender according to the loan requirements

You can also ask people who have availed business loans from the lender you chose to know the customer experience of banking with the chosen lender. Don’t forget to look for their collateral requirements and repayment terms. Also, read the interest rates carefully and if there will be variations during the repayment tenure (i.e., fixed vs floating interest rates). Connect with the lender to know about the loan in detail if you are not satisfied with the information given on the website.

Business Loan
  • Read the eligibility criteria and check whether your company satisfies all the criteria

All financial institutions have certain preset criteria for approving business loans. Minimum turnover, credit worthiness, income tax statements are some of the criteria used to judge loan applications. Before applying for a loan check whether your company satisfies the criteria to be eligible for the chosen loan.

  • Carefully prepare your loan application

Loan application forms must be read thoroughly, and you should know all the answers to mandatory columns of the form. You will be required to attach some supporting documents like bank statements, business reports, etc. Make a list of all the documents required to be attached along with the application and make sure you don’t miss attaching any.

  • Check your credit history

Credit history is important for banks to give you business loans. Every financial institution will check your credit history to evaluate whether you will be able to pay up a bank loan. If you have defaulted on a bank loan your chances of getting a new business loan will be reduced considerably. Most lenders will only consider loan applications if your credit score is 650 and above.

  • Have a look at government schemes extending business loans

There are multiple government schemes offering small business loans to help MSMEs with cash flow, technology upgrade and expansion. Schemes including MUDRA, Stand Up India, CGTMSE, etc., seek to fulfil the credit requirements of MSMEs by giving them easy and affordable credit facilities. So, before you take a hefty loan from a bank, see if you are eligible for any of the active government schemes.

There are also new age fintech companies that offer reasonable financial loans tailored for business needs. These feature fast loan approvals with liberal eligibility requirements. You can also try out Business Loans by Tata nexarc to get a loan offer in 5 minutes with interest rates that start at only 13% p.a.

Priyanka Babu

Priyanka is a seasoned content marketing professional with more than 6 years of experience crafting various forms of business and technology sector content. Her insightful writing tackles critical issues faced by small-scale manufacturing businesses. Priyanka’s clear and concise communication empowers businesses to make informed decisions and thrive in today’s dynamic business environment.