Here's how a business loan can help your business run seamlessly!
Businesses work in such a way that they always require capital at some stage to ensure they are running smoothly. A regular influx of funds is healthy for a business because these funds can be used to pay salaries, carry out the expansion, and take on new projects.
Now this influx of funds can come in many ways. An investor may decide to put some funds into your business in exchange for a portion of the company. However, one of the most common ways to get funds is to borrow a business loan.
Lets understand business loans in detail and the benefits they offer.
What is business financing or a business loan?
A business loan is a loan that you can borrow from a bank or a Non-Banking Financial Company (NBFC) in order to finance your business. A business loan can be used as working capital for your business, purchasing new equipment, expanding, increasing manpower, upgrading technology, etc. You must repay your business loan just like any other loan with the decided rate of interest applicable on it.
Getting business financing successfully in India is considered difficult, especially for new businesses or those that are not considerably larger and well established. However, the government has extended a helping hand with favourable policies and schemes for Micro, Small and Medium Enterprises (MSMEs). You can apply for an MSME business loan if you fall under the category and get it at excellent rates.
Benefits of a business loan
A business loan can be highly beneficial compared to other business financing options. Lets take a look at some key business loan benefits.
A business loan offers you better flexibility to use the funds since the lender does not interfere in your business operations. You can boost your business by feeding the business loan in an area that you see fit. This may not be true for other funding sources like equity investors. They expect returns, and a portion of the business is now theirs. Thus, they may need to keep track of how their money is being used.
Better choice for Government Schemes
Government schemes like CGTMSE offer an opportunity for SMEs to get business loans without any collateral or guarantee. Now those willing to start an MSME should consider applying for new business loans or small business loans via these government schemes.
Convenient Repayment Schedules
Lenders understand that businesses go through their ups and downs. Hence, they are willing to offer flexible repayment schedules for business loans.
The repayment plan will be suited to the borrower's needs based on the cash flow of the business. EMIs can also be increased or decreased as per the profits of the company. One may also make bullet payments for periodic repayment of the business loan.
Attractive Rate of Interest
Business loan interest rates can be highly competitive. Therefore, they can be reasonable. This is because lenders are vying for the attention of borrowers, and a low-interest rate can bring in more borrowers.
Additionally, government-backed schemes for businesses also offer very reasonable interest rates. Hence, this can be very advantageous if you're looking for a business loan with attractive interest rates. Of course, interest rates are affected by other factors like the borrowers credit profile, the financial condition of the company, loan amount, loan tenure, etc.
Tax Benefits of Business Loans
The interest paid on business loans is tax-deductible. Thus, if you are repaying your business loan, then you can claim your tax deduction at the time of filing if you are eligible for the same.
Lenders have no hesitancy in giving out personal loans to creditworthy applicants. Hence, the loan disbursement in such scenarios can be done in less than 72 hours. This time may even be lesser if you are an existing customer with the lender.
No profit sharing
If you get an investor on board, then you may get the funds you are looking for, but you must also share the profits with the investor. If your company does very well, then you have to pay them the respective profits as per their share of the company. This is not the case with a business loan.
In a business loan, the money you repay is the actual principal amount and the interest. Both of these figures remain fixed, and you shall repay this amount regardless of whether your company is getting high or low profits.
A Business Loan is Unsecured
A business loan is an unsecured loan. Hence, you do not need to provide collateral or a guarantee to secure the loan.
Your loan eligibility is determined by your credit history, your companys finances and other such factors. For small businesses that dont have many assets, this can come in handy as they can apply for a business loan without a collateral requirement.
A business can stagnate if there is no fresh influx of cash. A healthy financial boost can do wonders for a company since it is an opportunity to expand operations, upgrade equipment, open newer facilities, etc. This will lead towards excellent business growth, and your business may start generating higher profits.
A business loan can provide you with financial assistance for various purposes. Therefore, by borrowing this loan, you can help your business grow exponentially.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.