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There is a demand for good businesses whose services or products consumers can use to fulfill their needs in the modern world. But, often, great business ideas in India fail to shine because of numerous factors, out of which one primary reason is the lack of finance.
Hence, business loans are provided by banks to those entrepreneurs who need capital aid and looking to expand their business by developing and promoting their products and services. This article will give you an overview of a business loan and the factors to consider while opting for one.
Purpose:
For businesses to gain growth, it is essential to have a solid investment and return. Therefore, small businesses started by entrepreneurs require money to be borrowed and invested in expanding their business. And this is where business loans can come as a savior.
These loans can be secured or unsecured, depending on the scale of the amount borrowed. In addition, businesses often need to submit their inventory or accounts receivable as the collateral for sanctioning the loan. So, now, let us look at some purposes of availing of business loans.
Purchasing real estate: Entrepreneurs can apply for a business loan if they are looking for a property to be purchased to expand their operations.
Purchasing inventory: Businesses need to continually replenish their inventory to meet market demands and manufacture products for customers. Hence, they might opt for business loans for the purpose.
Purchasing equipment: Businesses need to have functional equipment to streamline their production. Hence, replacing faulty equipment and machinery is mandatory for efficient growth, which they strive to meet through business loans.
Maintaining cash flow: Businesses require loans to maintain a steady capital at times of low profit or during replenishing the unsold inventory for newer products.
Enhancing credit history: To acquire larger loans for expanding your business in the future, banks seek a good credit history. It can be achieved by improving the business owner's credit score by taking smaller loans and re-paying them timely. And due to this reason, many entrepreneurs opt for business loans.
Benefits:
There are several noteworthy benefits of taking a business loan for your business. Let us look at some of them.
- Disbursal period: You do not have to worry about the halt or delay in the operations and plans of your company, as banks can disburse the amount quickly to maintain smooth working. Banks like HDFC can disburse massive amounts like 50 lakhs within a short span of only 48 hours.
- Flexible tenure: The tenures for repayment of business loans are flexible as you can select your preferred time frame based on your capability.
- Complete control of your own: Banks and lenders do not require you to offer equity to them as the complete process is retained with the entrepreneur themself. Therefore, business owners have the freedom to do what is suitable for their company without being questioned.
- Minimum paperwork: Banks do not demand extensive documentation processes for businesses. Besides, some small companies can also acquire the loan without submitting any collateral or guarantor.
Key points to remember when taking a business loan:
There are several factors to consider while opting for a business loan from a bank. So, let’s go through some significant factors that play a major role in selecting the loan.
- Loan amount: Banks offer you loans based on your business prospects. So, it is better to select a bank that will provide you with sufficient capital instead of opting for multiple smaller loans in numerous banks. For example, HDFC bank offers a business loan of up to Rs. 75 lakhs and IDFC bank can sanction a loan of up to Rs. 9 lakhs, which are enough for small-scale businesses.
- Interest rate: Selecting a bank that offers loans for a lesser interest rate is better. For instance, Tata Capital offers business loans at an interest rate of 19-25% per annum.
- Loan tenure: Various banks offer loans for different tenures based on their convenience. For example, if you take a smaller loan for immediate expenses, you can opt for a 1-year term. However, if you plan to expand your business operations and look for a bigger investment, a longer tenure like 3-4 years will be helpful.
Conclusion:
We hope by now you must have got an idea about business loans and the benefits they accompany. So, if you want to start your own business at a good pace, approach a bank or NBFC that offers the best interest rate and flexible tenure.