A Business Loan generally refers to an unsecured short-term loan for businesses. Although any loan availed by a business for business purposes can be termed as a business loan, the unsecured variant of a term loan is typically what is meant by this term.
These loans are raised by businesses to meet short-term funding requirements and are repaid in EMIs spread over a maximum of 3-4 years. They are called unsecured because no collateral is required to secure the loan amount.
Such loans are granted purely based on business performance, the vintage of the business/promoter, the end use of the loan amount, and the overall business comfort derived by the lending institutions. These loans can be availed by individuals, MSMEs, business owners, entrepreneurs, retailers, traders, manufacturers, self-employed professionals (such as CAs and doctors), and several other business entities.
Since these loans are unsecured, the interest rates are higher compared to secured lending instruments. The maximum loan amount that can be availed is also defined by the lending institutions.