All business entities require constant infusion of funds to maintain and manage their working capital requirements and cash flows. Businesses need significant working capital for smooth operations and boost profitability. Business needs funds for varied purposes, such as:
- To purchase new equipment/machinery
- Hiring/training employees
- Expanding the company business
- To increase inventory
To meet these fund requirements, companies avail business loans from financial institutions. Different financial institutions such as Banks, NBFCs, and Government institutions offer attractive business loans to companies.
What is a business loan?
Business loans are an unsecured form of credit that is designed and offered to companies by financial institutions. These loans help companies meet their business expenditures. These loans fall under small business loan/instant business loan category where the requirement of capital is limited.
Small business loans are usually taken to tide over cash crunch problem on a day to day basis. Small business loans help in generating a balance in the cash flow that is necessary for running a business. It is beneficial to meet cash requirements during the off-season or to meet the demand of the peak season. The small business loans are usually availed by small manufacturers, traders, retailers, wholesalers, and service providers.
Reasons to avail business loans and their financial benefits
One of the significant benefits of getting a small/instant business loan is to meet the immediate requirement of your business entity. Some of the financial benefits of availing business loans are:
- More Funds, More Promotions
Every company would wish their brand name to go viral on social media. Having sufficient funds at hand will mean more means of grandeur promotions, marketing, and advertisements.
- Create the Infrastructure
Providing seamless and uninterrupted services are the definite goal of any company. For this purpose, a well-defined and updated infrastructure is vital. The possession of extra funds procured through business loans will help the company to develop and maintain a good infrastructure for smooth functioning. Such infrastructural amenities may include payment gateways, delivery channels, storage houses, and in the tightening of the company confidentiality and secrecy of the business moves and tactics.
- Collateral – Free
Business loans do not demand any income or collateral documents from the borrower as a hard and fast rule. For a small-scale business start-up, this will lend a helping hand in meeting the business requirements and sustain the progress simultaneously.
- Ease of Access
The amount to be paid as the monthly instalments can be raised or lowered depending upon the borrower’s accessibility to funds or monthly profits.
As per their own convenience, lenders offer a variety of repayment options. Repayment can be planned according to the monthly business cash-flows of the venture.
Loans can be availed based upon the borrower’s business goals. Loans are lent for a short-term and long-term as well.
- Financial Restructuring
Time and effort can be saved using business loans that help in the consolidation of the company’s existing loans and debts.
- Diversifying Product Range
Business loans can be availed for the purpose of stock management, manufacturing costs and extending the product and service line. To grow the business, one needs to expand the range of products that the company sells. This is a strategy adopted by many business firms to grow their business through various ways of marketing a product or improvising existing products and services by adding certain salient yet unique features.
- Competitive Interest Rates
Business loans in India are offered at a nominal processing fee and competitive interest rate. They are also available to common people with no hidden charges.
- Hassle-free Application Process
For small ventures and start-ups, the application process is simple and involves only the submission of the business plan inclusive of the estimated start-up and managerial costs. If the verification committee feels that the plan is viable, and practical the loan is sanctioned.
- Tax Relief
Small business loans are granted and acquired at lower rates of interest. Under the section of Income Tax Loan Amount, banks provide tax benefits to the loanee. The profit percentage from the loan is exempted from tax payment.
- Improve Business Credit
Availing such business loans enables the loanee to improve the business credit which in turn increases the cash-flow of the business.
Eligibility Criteria to get a business loan
To avail an instant small business loan, a business entity has to meet the following parameters:
- The location of the business entity should be in the favourable location list
- The business entity should be in operation for more than 6 months.
- Minimum turnover of the company should be ₹90,000 for 3 previous months before applying for the loan.
- Companies dealing in blacklisted businesses are debarred from getting a business loan.
- NGOs, Charitable institutions, and Trusts can not avail business loans.
Documents required to avail a business loan
|Business Registration proof||✓||✓||✓|
|Bank statement (12 months)||
|PAN Card copy of the Proprietor||✓||✓||✓|
|Aadhar Card copy of the Proprietor||✓||✓||✓|
|Copy of Partnership Deed||–||✓||–|
|Copy of Company PAN Card||–||✓||–|
How to Apply for a business loan?
There are three simple steps to apply for a small/instant business loan; these are:
Step 1 – Apply containing all details about the business entity.
Step 2 – Upload the documents or if required provide physical documents for verification
Step 3 – The business loan is approved, and funds credited to account.
What are the different types of business loans in India?
Depending upon the need of different business ventures, the financial institutions provide business loans of various types. Some of the different business loans offered by financial institutions are;
- Start-up loan – The start-ups need finances to establish and expand their business. Financial institutions consider a company’s plan, performance, credit history if any, before giving loans.
- Small business loan/Instant business loan – SMEs need funds to cover their immediate capital requirements for a plethora of business plans and expenses. Financial institutions provide collateral-free loans at low interest based on credit history and other parameters.
- Term loans – The term loans are taken for capital expenditure or specific purposes. These are provided in both forms – secured loan or unsecured loans. These business loans have fixed tenure of payment and are given based on past credit history.
- Equipment financing – The manufacturing units avail the equipment finance loans to purchase expensive equipment. These loans are generally available at low-interest rates.
Business loans offered by financial institutions ensure that the companies do not falter on their expansion plan or cash crunch should not hamper the operations of the company. The small business loans that are instantly offered allow companies to carry out their everyday business activities at times of crisis. Many companies have cyclical businesses, and during peak instant business loans help them to scale up their operations.
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