Business loans are used by business entities to finance a project, buy new machinery, expand their product line, etc. Small businesses, especially traders including retailers and wholesalers, is one of the most significant markets for business loan lenders. Business loans for traders can include all business loans extended commercial establishments of India.
Traders can even apply for MSME loans as trading businesses are now categorised as MSMEs as per the new definition of MSMEs in India. While government loans for traders are extended through government schemes and policies, lending institutions like banks and NBFCs have specialised loan products for traders that can fit their exclusive financial requirements.
Why do traders need business loans?
There are multiple reasons why traders look for an external source of finance. Here are a few common reasons why traders apply for business loans:
- Payment of employees
- General maintenance costs
- Expansion of storage space
- Expansion of the store
- Buying inventory to satisfy increased demand
- For daily cash flow in case delayed payments
What are some business loans for traders?
There are different kinds of business loans sanctioned by lending institutions of India. Some are specifically tailored to small business uses and others are for specific purposes like purchase of machinery. Here are a few types of business loans for traders that are disbursed by lenders in India:
- Term loans
- Working capital loans
- Invoice financing
- Microfinance loans
You can also try applying for government loans schemes for traders to get easy finance at low interest rates and other subsidies. Here are a few government schemes that traders can leverage as a source of easy finance:
- MSME loan in 59 minutes
After realising that MSMEs need loans that can be processed and disbursed quickly, the government launched MSME loan in 59 minutes for small business. Designed for quick disbursal, the loan application accompanies high-speed processing with minimal documentation and is one of the best MSME loans for traders. This is a collateral free loan with the loan amount ranging from ₹1 lakh to ₹5 lakh. There is a dedicated government online portal for applying for this loan.
- MUDRA loans
MUDRA loans are sanctioned under the Pradhan Mantri Mudra Yojana (PMMY) scheme to non-farming and non-corporate MSMEs. Mudra loan for traders can sanction up to ₹10 Lakh.
- Bank credit facilitation scheme
Introduced by the National Small Industries Corporation (NSIC) in partnership with banks of India, the scheme seeks to offer loans to meet the credit requirements of MSME units. You can avail working capital and term loans at affordable rates and get help with the documentation process from the NSIC.
- Stand-Up India scheme
The Stand-Up India scheme is designed for Scheduled Caste (SC)/Scheduled Tribe (ST)/women entrepreneurs looking to set up greenfield enterprises in the field of trading, manufacturing or services. This startup loan for traders lets you avail a loan for 75% of the project cost under this scheme.
Features of business loan for traders
The features of business loans for traders depend on the specifications of loan products from lenders. Here are some of the common features for business loans for traders in India:
- Flexible repayment period
Borrowers can choose their repayment period whether it should be monthly, quarterly, etc. Lenders can also choose to finish paying the loan over a period of 36 months, 60 months, etc., depending on the loan amount and the terms of the loan.
- Fast loan processing time
Usually, traders tend to take lower loan amounts compared to manufacturing businesses. Since these are low risk investments for lenders, they usually have quick turnaround time to process loan applications of traders.
- No collateral
Since these are small business loans featuring low loan amounts, lenders usually refrain from asking collateral. This means that wholesalers and retailers can avoid the hassle of finding adequate collateral for business loans. However, do note that not all lenders provide loans for traders without security.
- Quick disbursal
Low loan amounts not only means that the loan processing time is quicker, but lenders also speed up the loan disbursal time.
Eligibility for business loans for traders
Every lender will have a certain set of eligibility criteria for business loans. Here are a few general eligibility criteria for business loans for traders:
- The minimum age of the applicant must be 21 years, and the maximum age requirement is 65 years. This can change from lender to lender.
- The trading business should have been operational for three or more years or as specified by the lender.
- Every trader should meet the minimum annual income cutoff specified by the lending institution.
- Traders should satisfy the average annual turnover specified by the lender. The turnover requirement will differ from lender to lender.
- Minimum credit score as mentioned by the lender should be satisfied. It is better to have a credit score of 650 and above to improve the chances of getting a business loan sanctioned.
- Traders should be registered as an MSME for applying for MSME loans.
Documents required for business loans for traders
To apply for a business loan, you would need to submit a few documents to prove your identity and the existence of your business establishment. Here are some of the common documents required for business loans for traders:
- Personal identification proof – PAN and Aadhaar card (can be used for age-proof when age criteria is applicable), Passport, driving licence, voter ID etc.
- Address proof – Utility bills such as electricity/water/phone bill, government bank account passbook, etc.
- Financial and tax documents – 2-3 years ITR, CA audited balance sheet or P/L statement, 6-12 months bank statement, etc.
- Business existence proof – GST certificate, Shops & Establishment certificate, trade licence, etc.
- MSME registration certificate – MSME registration/Udyam registration (when applicable)
In addition to the documents mentioned above, lenders may request an ongoing loans declaration to see if there are outstanding loans and determine the current loan amount to be disbursed.
You can check for eligibility criteria and documents required on the websites of the lenders under the specific loan product.
How to find business loans for traders?
Business loans for traders can be availed from banks, NBFCs, MFIs, cooperative banks, etc. These lenders will have specific loan products tailored to your business needs. Make sure you visit the websites of each lender and read the loan instructions carefully.
You can also try online lending platforms hosted by new age fintech companies. These platforms offer digital lending solutions and eliminate visiting a physical location to apply for a loan. These institutions have a quick and easy loan disbursal process with relaxed eligibility requirements. Filling in the loan application form and the submission of relevant documents can be done online. When it comes to online lenders, the loan approval and sanction time is typically just a few days.