A business loan is also an unsecured credit that is used for any urgent requirement of the business. Using business loans, enterprises can access funds that can be used for:
- Enhance the existing network of businesses
- Increase production
- Purchase new machinery
- Ensure technological innovation in operational aspects
All the necessary purchases and payments can be made to vendors by the cash infusion using business loans.
This approach increases the brand image of the company. It also ensures that the functioning of the business is carried out in a smooth way.
Acquiring business loans has become easier with NBFCs like Lendingkart offering business loans at attractive interest rates to borrowers.
Why are Business Loans are Getting Popular?
- Thanks to the prevailing winds of change in the global markets. The entrepreneurs are increasing their presence in the manufacturing and services fields.
- The skilled workforce hiring is only possible by paying higher salaries. It also helps to cover other administrative expenses by availing of business loans.
- The pandemic has left profound changes in the global markets, and businesses are scrambling for easy credit to keep their businesses afloat.
- Skilled business owners should make use of this great opportunity to get ahead of competitors.
Business owners should understand the importance of securing a collateral-free business loan at a cheap interest rate with long repayment tenures.
Salient Points of a Business Loan
- Business loans make sure that the cash flows of a company did not undergo any major fluctuations. The capitalization levels of the company should be in the comfortable range.
- Cash flow is highly important to increase the trust of the business among the vendors. The operational logistics of the company are simplified. Business Loans help to improve administrative and operational machinery costs.
- The quantum of a business loan makes all the difference to the entrepreneurs. Secured business loans ranging between 75 lacs and 1 crore are availed from commercial lenders contingent upon meeting all necessary conditions.
Commercial lenders now are conducting their business loan processes swiftly and ensure transparency in the sanctioning process. They have to follow the Government Guidelines.
With the advancements in information technology, a single-window platform is allocated for business loan applications. It ensures that entrepreneurs do not face a documentation nightmare in the hands of the banks and commercial lenders.
The online business loan process is getting popular nowadays. It reduces customer processing time by eliminating the need to visit a bank brand for loans.
Business Loan Variants
The various types of small business loans are invoice factoring, extending business lines of credit, and securing merchant cash advances.
Each loan variant comes with its own set of pros and cons. Business owners should choose the best loan variant as it goes a long way in ensuring the future sustainability and profitability of the business.
The quantum of the loan amount is an essential factor in inducing credit discipline among various operational costs of the company.
It helps to avoid fraud incidence by maintaining prudence in taking credit from different commercial lenders. In the present corporate world, there is a lot of controversy regarding top-level corruption.
The top management should wisely decide on the quantum of loans and rate of interest and tenure. Ensure the loan before committing the lives of the employee and the precious resources of the company towards the mortgage in a commercial lender
1. Term Loans
The core aspect of business financing lies in the ability of small businesses to secure term loans at an attractive rate of interest.
The upfront amount is given to the small business owner to invest in office machinery. However, it comes with stringent repayment conditions. The entrepreneurs are required to make regular interest payments at a predetermined period.
Business loans in India can go up to as high as Rs 75 lacs. It helps to provide the necessary inputs to launch your business into a higher-performance orbit.
Banks are coming forward to give small loans to businesses owners due to the increased focus on the government in credit mechanisms.
Kotak Mahindra Bank
- ROI: 16%
- Loan Up to Rs. 75 Lakh
- Repayment: 6 – 48 months
- ROI: 15%
- Loan Up to Rs. 50 Lakh
- Repayment: 12 – 36 months
- ROI: 17%
- Loan Up to Rs. 75 Lakh
- Repayment: 6 – 48 months
Pros of Term Loans
Entrepreneurs get a chance to use the whole business loan amount in the initial infrastructure.
As compared to other variants, term loans offer the highest quantum of amount.
The swift processes of commercial lenders create time savings for the entrepreneurs and help build a financial relationship.
The whole process is straightforward, and the rates of interest and other borrowing conditions are transparent.
Thus inducing confidence in the entrepreneurs towards achieving success.
Cons of Term Loans
The only downside in these term loans is that the banks are not willing to take a risk with regard to your professional and personal capability.
Collateral is the main factor in the contractual agreements of the term loan between the entrepreneur and the commercial lender.
Entrepreneurs have to part with prime real estate to ensure that the banks give the required amount of funding in a swift way.
Entrepreneurs have also needed to take into account that in case of bankruptcy, they risk losing the precious collateral that and spell doom to their personal finances.
2. Small Business Administration Loans
The initial planning objective is a primary reason for deciding the quantum of repayment period in small business administration loans.
The advantage of these loan variants is their extended payment tenures of more than 25 years. Thus, small business owners can help them to engage in prime real estate purchases.
The interest rates in small administration loans are least in the global market. Small business owners with good reputations and credit history can tap large amounts up to Rs. 5 crores.
They can get loans pledging their bonds and the stock market in the form of business finance. The long repayment terms ensure that businessmen are getting the required peace of mind and enjoying the fruits of their labor.
Stringent conditions are applied to small business administration loans. It should be observed before engaging with the commercial lender. The bank allows only the best of the best applicants to enter into the final loan sanction process.
Refinancing of small corporations can be done in a splendid way without any financial vagaries using SBA loans.
Borrowers who belong to a niche lending category with impeccable credit documents can use this funding option.
A small business administration launch can catapult your business towards higher profitability.
3. The Business Line of Credit
The funds are dispatched to the entrepreneur depending on the maximum credit limit.
The borrowers are required to service the interest payments only up to the limit of the money drawn for business needs.
The unique factor of credit lines is that they offer a level of flexibility when compared to term loans.
It is an unparalleled way to borrow money flexibly. And ensure that the business interests are not disturbed by interest payments.
Another advantage is an absence of collateral that makes the entrepreneurs feel easy since their personal finances remain untouched.
Globalization has made sure that the physical boundaries do not matter in economically connected trading systems. Business organizations can ask for new loans:
- To meet the cash flow requirements
- The hiring of new employees
- Purchasing of new equipment and machinery.
Introducing new product lines can be done using business credit lines which give a competitive advantage to the firm.
Acquisition of profit-making small companies can increase the net brand worth of the parent company.
3.1. Important Point regarding Additional Fees in Business Loans
Entrepreneurs need to watch out for additional costs such as drawing fees and maintenance fees.
The revenue credentials of the company need to be conducted in a strong way.
More limits on the business line of credit should go through the top management of the banks.
Business lines of credit are the best financing method for meeting the short-term financial requirements of the business and in the proper management of cash flows.
Any risk involved with the strategic fluctuations of the stock market is well handled by using business lines of credit.
4. Equipment Loans
The business equipment goes into the heart of making your business memorable and trustworthy among the clientele.
Business equipment loans help take care of infrastructure and logistics needs such as truck financing, a fleet of cars, and transport needs.
Bankers would pay close attention to the maintenance of different equipment towards the smooth functioning of the business.
This type of equipment loan is given to entrepreneurs in the services category mainly about home delivery partners.
The business strength is determined by the ability of the entrepreneurs to get the right equipment loans with attractive financing conditions from commercial lenders.
Benefits of Business Loans
1. Working Capital Management
The operational capital requirements are a sacred duty of the top management of the company. To fulfill this responsibility, business loans are a helpful mechanism to expand the geographical footprint of the business.
Working capital loans ensure the proper maintenance of cash flows during pandemic times. But it also reinforces the resiliency factor in the operational processes of the business.
It ensures that the business model can withstand the dynamic economic climate. Business loans increase the capital revenues of the business and ensure the infrastructure is working at 100%.
It enables the core drivers of business growth and allows the capital levels to replenish with appropriate finances even during a lean period.
2. Induces Flexibility
Business loans come with multiple options to select the quantum of the amount of the loan. For example, a manufacturing loan can go to a higher amount, while the cash credit and temporary cash advances met with small business loans.
The loan amount and interest rate are vital determinants towards ensuring the long-term business growth of the company. The top management of the company should do adequate brainstorming with the financial department.
It ensures that the projected revenues of the company are in line with the documents of loan sanction. Companies can take small business loans during the pandemic to ensure no fluctuations in meeting short-term cash requirements. And to cover all vendor payments satisfied without loss of trust in the brand.
3. Inventory of Goods
Substantial capital inflows are required to increase the operational efficiency of the enterprise. It is to make sure that the stock options grow at a rapid pace.
Meeting consumer demand can be completed by perfecting the product line and inducing innovation according to International standards.
Owners should make their business procedures more efficient and deploy world-class financial practices.
Such as maintaining an excellent credit history report ensure that their management strategies are not disturbed by a deficiency in finance.
Conducting business finance is a great way to meet the burgeoning inventory cost. It also acts as a safeguard towards maintaining your income.
FAQ of Business Loan
What is a Business Loan?
Unsecured loans extended by non-banking finance companies, commercial lenders, and other private platforms to entrepreneurs without the requirement of hypothecation, collateral, and assets guarantor is called a business loan.
Who can Apply for Business Loans?
Businesses such as limited liability partnership companies, undivided family proprietorship, and joint partnerships can apply for business loans. It is a discretionary purpose of the borrower to determine the end usage of the business loan.
How is my Business Loan Eligibility Calculated?
Credit report plays a vital role in the business loan eligibility calculation, which determines the outcomes of loan sanction. Depending upon other parameters such as credit history, income statements, and social acceptance factor; the bank executives take a judgment call and decide on the discretionary loan amount. The loan amount depends on the ability of the small business owner to meet regular interest payments.
For What Purposes Can Entrepreneurs Avail of Business Finance?
Commercial lenders have a right to get mandatory information regarding the particular intentions of the business owner in business expansion. Commercial lenders should have an assurance that their capital is not diverted to other causes.
Capital infusion strategies at crucial transitional moments of the business model should be reported immediately to the commercial lender. For example, expansion and research activities are reported to human resources as part of the business development plan.
How Can Business Loans Help Seasonal Enterprises?
Seasonal enterprises who are staring at temporary cash flow mismatches can benefit by availing of business loans. They can use the money for raw material procurement without delayed vendor payments.
How Business Loans can help in initiating digital change transformation in the enterprise?
Recruiting top-class data analysts since the modern age is highly dependent on Big Data and Data Mining.
Mounting world-class marketing campaigns in the digital sphere involves lots of investment. Business loans help drive change transformation initiatives needed to train the management and employees in the new managerial concepts of strategy and vision.
Why Tenure in a Business Loan is Important to Entrepreneurs?
Repayment tenure depends on the borrower’s comfort to make satisfactory repayments to the lender with enough time. During the contract, the necessary precautions are taken to ensure a mutually agreeable tenure for borrowers and lenders.
How can short-term business loans help the enterprise?
Short tenure loans are a unique characteristic of unsecured loans such as instant personal loans, car loans, and cash credit given to companies. In these cases, the lender has made the necessary decisions. It includes the income levels of the borrowers, or the company is sufficient enough to service the extended loan.
How consistent cash flows can be maintained using business loans?
All struggling businesses can do well by maintaining a good relationship with the commercial lender. So that, they can ensure a steady stream of cash to the company. Instant irregular cash flows can severely dent the brand image of the company. It also leads to a loss of trust among vendors.
How Can Business Loans help Small Business Owners During the Pandemic?
In a relentless pursuit for the top place in the operational aspects, the business loans can help entrepreneurs cover staff and rent costs, utility costs, and depreciation on inventory. Cost management of funds is a necessary concept of the top management during the pandemic.