Traders play a vital role in any business of production, selling, or distribution. They are the link amidst the manufacturers of products/commodities and the consumer. By selling the manufactured products, they make a profit that fulfills their financial and business needs.
However, the business of trading comes with its own share of pros and cons. Increasing gap between demand and supply, delay in clearance of invoice by the purchasers, and other similar unforeseen events might hinder the natural growth of a trader. In order to sustain or expand their business, traders need a financial boost. Borrowing a business loan is an appropriate option for every businessman in this situation. There are options in the finance market that are best for these traders and their flexible policies align well with the trader’s financial limitations.
There are a number of factors you should be paying attention to when looking for business loans for traders. Whether you are looking to borrow from a bank or an NBFC, there are a few sets of policies and business loan eligibility criteria that you need to fulfill.
Read on to understand them in detail.
Bank loans for Traders
Banks offer loans or overdrafts to traders for them to expand their trade. The process takes a long time to go through and sometimes, it even takes more than a month. The procedure is very thorough and is a lot of hassle for the borrower who cannot miss even a single day of the business. The requirement of collateral is another issue, which is a big headache for the traders as they do not possess a lot of assets.
Business loan eligibility for a bank loan is that the net income of the concerned should be around 1.5 lakhs per annum for a business loan of 15 lakhs, the business should be around 3-4 years old. Also, the business should be making profits for a year or more. Depending on which bank you are applying to, there could be some variation in terms of policy. Generally, private banks have an easier set of policies in comparison to the nationalised banks.
Small business loan rates under the category of micro and small enterprises range from 9% to 12%.
NBFC Business Loans
Non Banking Financing Companies (NBFCs) offer business loans to traders for their expansion and growth. These business loans are much convenient to get sanctioned. They take a lot less time to be approved, sometimes in a matter of few working days. The procedure can be carried out online and they don’t ask for a lot of credentials and documentation. If the business has a good annual turnover, then some NBFCs do not even require a collateral. They also offer easy monthly EMIs and no prepayment charges. For a small scale trader or businessman who is on a lookout for lenders, this kind of flexible business loan comes as a great opportunity.
The eligibility criteria for NBFC business loans are, a minimal annual turnover of 10 lakhs, last ITR of more than 2.5 lakhs, must own a residence or a business premise, and the business should be running for at least 48 months. Almost all micro and small enterprise owners fall under this business loan eligibility criteria. The documents required are very basic and minimal, like a PAN card, bank statements of the last 12 months, ITR of last 2-3 years, business place address proof, and residence address proof.
Bank vs NBFC: which is a Better Option?
Traders are the major contributors to GDP of India. And for the GDP to increase, ease of doing business, easy business loans, and timely credit should be made available for the traders. Banks and NBFCs provide much needed financial support to these traders which helps them grow. Banks and NBFCs differ in their procedure and business loan interest rates.
Banks have lengthy application procedure and collateral requirement which may cause discomfort to the traders while applying for business loans. Also, the banks sometimes take weeks to sanction loans. This delay may lead to a severe loss on the part of the traders. The NBFCs, on the other hand, have an easy application procedure and no collateral requirement which means easily available funds for traders. Sometimes, these business loans get sanctioned in a few working days’ time which ensures a timely funding to the trader.