A business loan solves the pressing issues faced by a business owner. Still, many entrepreneurs hesitate before applying for a loan. Here in this article, you will find a few basic pieces of information that will evolve your concept regarding the various sources of business loans.
Why Are Business Loans Financially Beneficial?
Any active corporate venture must ensure that its cash flows and working capital are replenished in due time. The working capital is essential for the smooth operation of any business. Without this factor existing, there arise problems in incurring profits. To successfully execute business operations, a proprietor has to have money for a smaller goal like:
- To purchase modern equipment/machines
- Recruiting and developing staff
- Diversifying a company’s commercial portfolio and thus inviting new business opportunities
- To maintain inventory strength.
Businesses acquire business loans from banks to fulfill all the aforesaid money requirements. Various financial entities like microfinance organisations, commercial banks, and governmental banks deliver profitable business loans to every business owner.
Define Business Loan
A type of financing crafted and delivered to companies for application in their commercial activities is a business loan. Company expenses are met successfully by taking these loan amounts. This loan category is further broken down into rapid and small business loans. These are often utilised to pay for temporary financial crunches daily.
Getting cash inflows as a small enterprise is an effective technique to arrange for a surplus balance in the company funds required to maintain the commercial affairs. Small business loans are beneficial to meet economic needs during the off-season. These things also help the owners to deal with the peak season’s higher investment demands. Medium-sized and small-scale manufacturers, merchants, wholesalers, traders and service vendors appear to be the usual loan seekers if we consider small business loans.
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Various Sources That Offer a Business Loan
You can apply for a loan online; the process appears easy. To get business loan approval, you must first fill out an online application. After that, the authorising body asks for your business details and personal information. Lastly, you are asked to upload the bank statements generated during the previous six months. For all these procedures, once completed, the agent of the concerned organisation contacts you to proceed with the further steps. However, many sources offer you a business loan. In this following section, we will briefly mention each source and understand their aspects.
- Financial institution: As we have mentioned before, a business loan has been proven to be the best way to meet your commercial expenses. All you need to do is fulfill simplified eligibility criteria and later hand over the listed business statements. If the enterprise is more than three years old and has an impressive credit score in the past, you can request business loans from any financial institution. Generally, credit amount of up to Rs. 45 lakhs is dispensed to small-scale enterprises to meet their investment needs.
- Invoice financing: This source is often referred to as ‘accounts receivable’ in the language of accountancy. At some point, the owner may fail to support business costs like raw ingredients or paying staff’s wages if the accounts receivable remain unsettled for a considerable amount of time. In such cases, the owner can decide to induce invoice financing to use unpaid invoices as a medium to acquire working capital. Top financial institutions and banks in India give you invoice financing loans. This saves business owners by addressing the liquidity crunches.
- Venture capitalists and angel investors: When we are addressing the topic of business financing, it will be a complete injustice if we do not address the equity capital concept. If you have launched a new firm or startup, it is understandable that you may lack sufficient upfront costs. Under such a circumstance, nobody expects you to have the necessary qualifications to get instant business loan approval. In this scenario, your option of raising business funds remains active as you may approach angel investors or venture capitalists. They provide financial aid to promising startups. In return for granting funds, these people will take away a certain percentage of the company’s equity or expect a portion from your annual ROI or return on investment.
- Business credit cards: A business credit card is one of the best sources of acquiring a business loan during an emergency. This is referred to as a volatile credit facility. You do not need to pledge your equity in return for availing of the benefits of business credit cards.
- Inventory financing: This is a secured borrowing option. In this plan, an enterprise pledges its inventory or pieces of machinery as collateral. Small businesses frequently opt for this credit option as they cannot afford other financial solutions at the early stages of their commercial journey.
Also, there are other sources of business loans like crowdfunding, peer-to-peer money lending and so on.
Benefits of Availing of a Business Loan
Business loans are categorised into several classes. Thus an owner can choose what type suits his venture the best. The business owner himself fixes tenor and loan amounts. Short-term business loans can be settled within one year. If the owner feels the necessity to borrow a hefty sum, he can opt for long-term loans that can be repaid in five to seven years.
Banks and NBFCs offer business loans at market-friendly interest rates. The loan’s tenor, creditworthiness and collateral define the loan’s interest rate. Processing fees are applied at minimal value. Borrowers, therefore, do not hesitate much before going to a loan.
NBFCs and similar financing institutions deliver collateral-free business loans. Small business owners find this initiative very useful and opt for this fundraising method to ensure the sustainability of their commercial journey.
Business loans arrive with easy repayment schemes, assuring owners that they can settle the borrowings without trouble. Owners get ample time to figure out a repayment roadmap to complement their business efficacy. The quarterly EMIs can be reduced or elevated based on the performance of the business. There are convenient ways of settling the loan amounts. For instance, one may apply for the auto-debit service via EFTs or an electronic funds transfer mechanism that will be applied to their registered bank account.
Conclusion
Business loans help business proceedings when the owners or business partners have suffered from liquidity crunches. Numerous institutions come with several lending plans. A business loan’s interest rate is much lower than personal credit rates; thus, one should consider them to operate their business proceedings smoothly.
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