sole proprietor business loan

Single proprietorship business is the most common form of self-employment in the country. Be it your neighborhood Kirana shop, Eatery, Trading Agency, Medical Store, Travel Agent, to name a few; it is most likely that it will be a single man show of the sole proprietor. Like any business, the sole proprietor is also greatly benefited if a suitable loan is granted for business expansion, working capital, equipment upgrade, publicity or diversification. It is cumbersome seeking a business loan from a bank for its tedious procedure. Space is gainfully grabbed by Digital NBFCs like Lendingkart who have transformed the contours of small lending in the country with innovative, customized quick finance options drawing the attention of borrowers.

Purpose of Sole Proprietor Business Loan:

business loan can be sought by the sole proprietor for a variety of reasons to meet fund requirements. An indicative list can be as follows:

  1. Renting, Purchase, Renovation of business premises.
  2. Purchase and replenishment of inventory.
  3. Meet Working Capital needs and ensure adequate cash flow, payment of salaries and meet statutory expenses.
  4. Purchase, upgrade or replacement of equipment, stationery and refurbishing of office or business premises.
  5. The hiring of staff and their training, if required.
  6. Publicity of the business through available modes of print, visual and social media.
  7. Expansion or diversification of business.

Nature of Sole Proprietor Business Loan:

There are two types of business loans granted to sole proprietors, which is determined by security for the grant of loan. Accordingly, the loans can be either:

  1. Secured Loan: Business loan for which adequate protection covering the quantum of loan is obtained. The security can be mortgage or deposits, certificates, LIC policies or similar instruments.
  2. Unsecured Loan: No collateral is sought for granting such loan to the borrower. In the present scenario, most Fintechs, of which Lendingkart is one, offer business loan up to Rs.2 crore without any collateral, making it extremely attractive to the borrower.

Business Loan Products suitable for the Sole Proprietor:

  1. Term Loan: It is a loan granted for a specific purpose, and the entire amount is disbursed in a single tranche. The loan is needed to be repaid in a fixed period, which in Lendingkart is 36 months maximum.
  2. Line of Credit: It is an overdraft facility granted to the business account whereby you are free to withdraw up to a pre-approved limit and repay at will. It is beneficial as interest is charged only on the used fund precisely for the duration of such use.
  3. Invoice Discounting: A percentage of the value of the outstanding receivable invoices is provided to ease cash flow. The amount is repaid when the invoice is squared off.
  4. Merchant POS Cash Advance:  This is ideally suited for card payments through POS where funds are blocked temporarily. Depending on the value of transactions in the POS machine, cash is advanced to the borrower to ensure that the business is not out of funds.

Salient Features of Business Loans to Sole Proprietor:

Business Loans for NBFCs come with features that are mutually beneficial to the borrower and the lender in more ways than one. Some noteworthy features are:

  1. Fully digital application platform.
  2. Rapid processing of loans in a matter of hours.
  3. Competitive rate of interest.
  4. Transparent transactions without any hidden cost.
  5. Liberal and meagre documentation.
  6. Extremely liberal repayment tenor and options.
  7. Loans are either term or line of credit (overdraft) in nature.

Eligibility Criteria for Sole Proprietor Business Loan:

  1. Age should be greater than 21 years and less than 65 years on liquidation of the loan.
  2. The business should be operational for a minimum continuous period of 6 months.
  3. The quarterly turnover should be higher than Rs.90K.
  4. The business activity should not be in the negative list, and the location of the business should not be in a restricted site.

Documents required for Sole Proprietor Business Loan:

As compared to conventional lenders, documentation at Lendingkart is quite liberal as they seek bare minimum for sanction of business loan. The indicative documents could be listed as:

  1. KYC documents including PAN card, Aadhaar card of the sole proprietor and the business for identity and address proof.
  2. Business-related documents like registration, license, tax clearance etc.
  3. Banks statement of the business account for the preceding six months.
  4. Depending upon the quantum of loan, ITR with computation for the preceding two years.
  5. Balance Sheet, P&L statement of the previous two years.
  6. Any other document sought by the lender based on the loan product.

Application for Sole Proprietor Business Loan:

As already described, Lendingkart provides a digital platform for application and disbursement of the loan, which is mutually convenient to both. The entire cycle can be accomplished in a few simple steps.

  1. Online application with the input of personal, loan proposal and financial details.
  2. Upload of requisite documents in digital format.
  3. Evaluation and approval of the loan.
  4. Acceptance and disbursal of the loan to the credit of the business account.

Fees, Charges applicable to the Business Loan:

Rate of Interest

1% to 2% per month, depending on quantum and other factors.

Processing Fee

1% to 2% of the loan amount upfront

Pre Payment Fee

Nil

Loan Tenor

Maximum 36 months

Repayment Method

EMI or Fortnightly

Security

Nil

 

Sole Proprietor Business Loan FAQs:

1. How is the rate of interest impacted for the business loan?

The rate is determined based on several factors. The important ones are: • Amount of loan. • Tenor of loan • CIBIL Score • Age of Business

2. How much is the quantum of loan granted to the sole proprietor?

Different lenders have different limits. At Lendingkart a business loan amount can be from Rs.50k to Rs.2Cr.

3. Is there any variation like rate of applicable interest?

Yes, the interest rate can be either Fixed or Floating. While banks impose Floating rate based on MCLR, other lenders, including Lendigkart, have their PLR.

4. How can a borrower self determine loan eligibility?

The most natural process is to use the EMI calculator at the lender’s portal to get a picture of the financials involved in the loan.

5. How quickly is a business loan to sole proprietor processed?

The maximum time taken at a Fintech is 72 hours.