Are you thinking of changing your career option? Do you want to start your own business but step back due to a lack of finance? Don’t be upset because you can always choose the business loan option.
Here is everything you need to know about Business Loans and their suitability for your business.
What is a Business Loan?
Most often, an aspiring entrepreneur or an ambitious team is unable to execute their business plan due to insufficient or lack of funds. Here, business loans play a crucial role.
Many financial institutions provide business loans to small business owners or aspiring entrepreneurs looking for funds for their startup idea. However, the business loan interest rates vary slightly from one lending institution to the other.
Leading financial institutions like Clix Capital offer business loans from INR 5 Lakhs up to INR 50 Lakhs, depending on an entrepreneur’s needs or expansion plans.
Different Types of Business Loans In India:
● Business Term loan
● Working Capital Loan
● Loans under Government Schemes
● Small Business Administration Loans
● Machinery Loan
How to Determine which one is the Best Business Loan Option for You?
You must first understand each of these loan types and the relevant details associated with them to decide the best. So, let us take you on a tour of the attributes of each of them so that your decision-making process becomes easier and quicker.
Business Term Loan-
In this type of loan, the business owner must repay the loan in regular payments as per the loan tenure. Business term loans can be further divided into Short-term Loans and Long-term Loans, based on the size and requirements of a business.
In most cases, the tenure for repayment ranges from 12 months to 5 years. Those business loans that are completed within 12 months are considered short-term loans, while the ones that stretch up to 10 years are considered long-term loans.
If the loan is collateral-free, the amount can exceed up to 1 crore.
Working Capital Loan-
Many small enterprises or businesses require funds to invest in their day-to-day business operations and expansion services. In such cases, they can go for short-term Working Capital Loans that must be repaid within a year. The businesses are not supposed to provide any collateral or security deposit for this type of business loan, which is why they are popularly known as collateral-free loans. The business loan interest rates for Working Capital loans are comparatively higher than other types of loans. There is a specific set of limits as well. It depends on the lender to decide the limit of the amount that can be sanctioned and the specific business purposes for which it can be used.
Loans under Government Schemes-
To help promote small businesses, female entrepreneurs, and MSMEs, the government of India has introduced various loan schemes. Under the guidelines provided by the government, different financial institutions offer such business loans.
Small Business Administration Loans-
The government of India acts as the backup for this type of loan. Usually, private sector lenders provide such loans to small businesses. It is not a collateral-free business loan. Small Business Administration Loans are divided into different categories:
- 7(a) loan program
- CDC/504 loan program
- Microloan program
The interest rates of this business loan vary from 8% to 13%.
Large businesses or companies that come under the manufacturing sector often require funds to buy new types of machinery or upgrade their existing ones. Financial institutions offer machinery loans to such businesses for their machinery or equipment purchase needs.
Here are some questions that business owners should have answers to before finalising the business loan
● What is your business about?
● How long have you been in the business?
● What are the plans for your business?
● What is the present financial status of your business?
● Will you be able to provide collateral to take the loan?
● What Business Loan Interest Rate will be most suitable for you?
Here are some questions that the lender may ask the business owners during the loan application process
● What do you need the business loan for?
● What will be the amount of the business loan?
● What will be the repayment tenure?
● Will it be a long-term or a short-term business loan?
● Have you taken any other business loan before?
The answers to the above questions will help the entrepreneur and the lender decide on a suitable business loan and continue with the proceedings.
Advantages of taking Business Loan from Alternative Lenders Over Conventional Banks
Conventional banks are known for lending money to people at lower interest rates, but there are certain advantages to taking a loan from alternative lenders. Mostly, the approval requirements are less stringent. As a result, small businesses with no substantial financial history immediately go for their loans. Alternative lenders like Clix Capital offer loans through online applications. Their approval process is much quicker. They even provide a Quick Money option for those with immediate needs.
Now that you know about various business loans available, it is time to make the right decision. Choose a business loan that suits your needs and can help your business achieve its goals.