Get the Tata Capital App to apply for Loans & manage your account. Download Now

Blogs SUPPORT
Loans For You
Loans for Business
Investment
Insurance
Apply

Quick Links for loans

Quick Links for Insurance

Investment

Offers Quick Pay
Back

Equipment Finance

Avail Digital Equipment Loans
up to Rs. 1 Crore

  • Attractive ROIs
  • Customizable Loan tenure
Know More
Back

Equipment Leasing

Avail Leasing solutions
for all asset classes

  • Up to 100% financing
  • No additional collateral required
Know More
Back

New Commercial Vehicle Financing

  • First time user
  • Retail and strategic Clients
Know More
Back

Used Commercial Vehicle finance

  • Repurchase
  • Refinance
  • Top up
  • Balance Transfer
Know More
Menu  
 
Apply Now

Tata Capital > Blog > Loan for Business > Top Things to Know About an SME Loan Agreement

Loan for Business

Top Things to Know About an SME Loan Agreement

Top Things to Know About an SME Loan Agreement

An SME loan agreement or business loan agreement is a document that states the details of a loan acquired for business purposes. It is a contract between the lender and the borrower that contains the various clauses of the loan. The agreement contains a lot of legal jargon that can be difficult to understand, which is why it is advisable to consult a lawyer before signing one. However, if you do not wish to hire a professional,

Know More

Here are some terms that can help you understand the agreement.

Fixed or Variable Interest Rate 

The interest rate for business loans can either be fixed or variable. If you choose a fixed rate of interest, you are required to pay a pre-decided amount irrespective of the market’s fluctuations. On the other hand, if you choose a variable rate of interest, the interest on the loan can change frequently based on the market conditions. Sometimes, people do not understand the difference between the two and end up signing the agreement without the knowledge of how it impacts them. Ensure you assess your situation and choose the type of loan that suits you the best.

Prepayment 

Prepayment for Business Loan

The rules of prepayment differ for each loan provider. While some charge no fees if you decide to repay the loan in a lump sum, others may ask for a pre-closure fee. Picking a loan with no prepayment fees is ideal. However, even if you choose one with a penalty, you should understand how it can affect you as opposed to regular EMIs. You can use a business loan EMI calculator and compare it with pre-closure fees to make a better decision.

Security Cover

When you apply for a business loan, you also need to sign security against the loan. This could be in the form of assets or personal guarantee. Sometimes, the lender can also ask for additional security if the value of your assets fall with market conditions. It is advisable to use a stable form of security that is less likely to fall with market downturns. You can also opt for an unsecured loan; however, that may result in higher interest rates. 

Penalty Charges

If you are unable to settle your MSME loan, the lender is likely to charge you some penalty. Every loan provider has a criterion that determines the penalty fee in case of a payment default. The amount is usually mentioned in the loan agreement. Make sure you check this and understand its implications well. 

Final words

A business loan can substantially help you in setting up your business, running smooth operations, and ensuring its progress. However, it is vital to understand each and every clause of the loan agreement before you sign it. The ultimate goal of a loan is to help you in the long run, so make sure to include clauses that do not affect your financial standing, rather, make the loan process simple and straightforward. 

If you need an SME loan, you can check out Tata Capital business loans starting at an interest rate of 19%.

Apply Now

Give Your Business the Right Boost: Apply for a Business Loan Today

Apply now
Popular Searches
business idea udyogini scheme hsn code full form low investment business ideas top 10 most successful businesses to start transport business import export business in india mineral water plant cost collateral free loans
Disclaimer

Most Viewed Blogs

Trending Blogs

Calculator

Personal Loan EMI Calculator

Personal Loan EMI Calculator
Home Loan EMI Calculator

Home Loan EMI Calculator
Business Loan EMI Calculator

Business Loan EMI Calculator
Used Car Loan EMI Calculator

Used Car Loan EMI Calculator
Two Wheeler Loan EMI Calculator

Two Wheeler Loan EMI Calculator
Loan Against Securities Calculator

Loan Against Securities Calculator
Loan Against Property Calculator

Loan Against Property Calculator
More Tools
Our Subsidiaries
Our Other Websites

Useful Links and Resources

Most Important Terms & Conditions - Home Loans

Download in your preferred language

Download

Policies, Codes & Other Documents

Most Important Terms & Conditions - Home Loans

Download in your preferred language

Download

Tata Capital Solutions & Services

Uh oh, something went wrong

Please try again later.