Business loans offer entrepreneurs access to necessary funds to start their enterprises and grow their ventures. Entrepreneurs utilise business loan financing to meet various requirements of their enterprise – right from working capital requirements to fuelling growth and expansion. However, it takes a while to progress from the application stage to the final loan disbursement stage. As MSME owners looking for business credit, you must understand the business loan disbursement process in detail. This article outlines the meaning of loan disbursal, along with the various steps involved in the loan disbursal process.
What Are Business Loans?
Business loans are financing options offered to retail business owners to help cover operational costs. Lenders like banks, NBFCs, and Fintechs offer business loan financing to enterprises to cover expenses that range from working capital requirements to funding expansion, equipment purchase, and more. Entrepreneurs and business owners apply for loans. If they meet the eligibility criteria for the loan, the lender sanctions it and disburses the loan amount. Borrowers have to repay the disbursed loan amount and applicable interest through EMIs.
Business loans help enterprises manage cash flow and ensure long-term growth. These debt financing options offer the following benefits for businesses:
- Immediate capital: Generally, the business loan disbursement process is quite streamlined and swift, ensuring MSMEs have access to capital at the earliest.
- Nominal interest rates: Most lenders offer attractive and affordable rates of interest rates on business loans to help provide low-cost capital access to MSMEs.
- No collateral: Business loans in India typically fall under the unsecured loan category. In other words, businesses do not need to pledge assets to qualify for a business loan. This is particularly beneficial to MSMEs that have limited or no pledgeable assets.
To leverage these benefits, business owners must first meet the eligibility requirements of the lender and familiarise themselves with the process of business loan disbursement.
How Is a Business Loan Disbursed?
Loan disbursal means the process of getting the loan amount credited to your bank account once the lender has approved your loan application and sanctioned the amount. While the steps included in the business loan disbursement process for banks and NBFCs can vary depending on the lender, it generally includes the following steps:
Filling Up the Business Loan Application
The first in the process is submitting a business loan application to your selected lender. Most lenders offer an online platform where you can conveniently fill-up the loan application form with details about the business, your loan requirement, purpose of the loan, etc.
Submitting the Required Documents
Next, you have to scan and upload all the necessary documents to verify your eligibility for the loan. While the documentation list for business loans varies, most lenders require your KYC documents like Aadhaar and PAN cards, address proof documents, business registration papers, ITRs from the last 3 years, and bank statements from the last 6 years.
Assessing the Applicant’s Creditworthiness
Once you submit the application form and required documents, the lender proceeds to assess your creditworthiness for the loan. Lenders have a basic credit score requirement for business loans. They will check your CIBIL score and conduct a hard enquiry into your credit history to understand the risks of offering you credit. Generally, you can easily obtain a business loan with a credit score of 750 and above.
Approving the Loan
If the lender is satisfied with the documents submitted and your credit assessment, they will approve the business loan application. You will receive official papers from the lender outlining the terms of the loan, including the loan tenure, interest rates, prepayment charges, and other such details.
Signing the Loan Agreement
You must sign the agreement papers once you have carefully read and assessed the terms and conditions of the loan.
Disbursing the Loan Amount
Once the business loan agreement is signed, the loan disbursement process is commenced by the lender. Generally, most lenders ensure that loan disbursement takes around 48 hours to be completed. In other words, the disbursed loan amount will be transferred to your loan account within 48 hours of signing the agreement papers.
Tips To Ensure Smooth Loan Disbursals
Every MSME owner applying for a business loan wants quick loan disbursals. You can keep the following tips in mind to ensure a smooth and swift loan disbursal:
- Ensure you Meet the Eligibility Requirements
Lenders have specific eligibility criteria in place to manage the risk of lending of credit to businesses. This includes minimum turnover requirements, minimum business vintage, and minimum credit score requirements. It’s best to review the specific eligibility requirements of your selected lender before applying for the loan to ensure the loan disbursement process remains swift and easy.
- Submit All the Required Documents
To disburse the loan amount, lenders need to verify your eligibility with supporting documents. You need to submit various documents including KYC papers, business ownership proofs, and income proofs to validate your loan eligibility. Missing out on any one of these required documents can stall the loan disbursement process. Try to create a document checklist before submitting your loan application. This way, you can ensure a hassle-free loan disbursal and gain access to credit at the earliest.
- Avoid Making Errors in the Application Form
Your access to credit is based entirely on how accurately you fill-in the business loan application form. While most business loan application forms can be detailed, it is important to fill-in accurate and up-to-date information. Any discrepancies or incorrect entries on the form can delay the entire loan approval and loan disbursement steps as well.
- Provide the Right Bank Details
Lastly, once the loan is disbursed, the borrowed sum is credited to your bank account. Therefore, it is crucial that you provide the right bank account details when submitting your application form. If the lender has incorrect details, it may take a while to rectify things and get the loan disbursed.
FAQs
How long does it take for a business loan to be disbursed?
The time taken for business loan disbursements depends on the lender in question and their application and verification processes. After submitting the business loan application, loan disbursement can take anywhere between a few days to a few weeks.
What is the most common mode of loan disbursement?
Most lenders disburse the loan amount through an electronic fund transfer to the bank account of the applicant. Some may even issue a demand draft. A few lenders offer applicants a choice of their preferred loan disbursement mode as well.
