Learn how a business loans can help you in exploring new dimensions for your business. Check business loan interest rates and make your choice.
After several years of struggling through a regular bank job, Krishna Iyer, 30, finally decided to start his own business venture. He needs an office premises, new equipment/goods, inventories, and will have ongoing operational and other expenses such as salaries, marketing costs, etc. However, being a salaried individual in the earlier years of his career, and not being able to accumulate sizable savings, Krishna needs to pump in capital to the tune of a few lakhs to get his business started. Can Krishna avail a business loan/institutional funding easily? What are his options? From where can he get the loan without any hassles that will best suit his specific business needs? Let’s find out.
A business loan is a great option when bootstrapping through business expenses is not feasible. Banks and financial/private lending institutions offer business loans to cater to the diverse, multiple needs of budding entrepreneurs as well as businessmen looking at expansion, diversification or both. These loans help meet working capital requirements and grow/expand the business.
Listed below are some of the important ways a business loan can support your business and help it grow:
1. Savings intact
By taking a business loan, you need not liquidate your savings. This means your savings can be kept aside for a rainy day when probably some other business emergency may come up.
Some lending institutions, for instance Punjab National Bank and Tata Capital, extend business loans without the need for any collateral or guarantor. Business owners can, therefore, easily avail the required funds to meet their cash flow needs and ensure upkeep of their ventures.
Further, tech developments in banking have made it possible to avail business loans online, enabling borrowers to keep track of their loan applications as well. Important loan details such as payment schedule, repayment history, interest certificate, etc. can be accessed online.
3. More options, greater flexibility
Different types of business loans are available for business owners to choose from in line with their requirements. For instance, while working capital loans help meet a business’s operational expenses, term loans are a good option to fund business requirements in the short to long term. Overdraft facility is another option whereby borrowers are permitted to overdraw the current account as per the agreed-upon terms and conditions.
Other business borrowing options in India are Start-Up loans, Professional Loans, Loan Against Property, Gold loans, Letter of Credit Facility, and Cash Credit Facility.
Borrowers therefore get more flexibility not only in terms of a larger number of loan types, but also with respect to loan quantum required to operate their business optimally. Businesses requiring a greater inflow of capital find business loans a great option.
Business loan interest rates are not exorbitant, opposite to what is conventionally believed. Business loan rates are calculated on the basis of criteria like the borrowers’/business’s financial situation and credentials, loan tenure, and overall market dynamics. Also, business loans’ processing fees and commissions are nominal. You can, therefore, borrow funds for your business at a relatively lower interest rate and be assured that you are financially secure to deal with unforeseen circumstances in the future.
Table: Business Loan Offerings of Leading Financial Institutions in India
|Institution Name||Interest Rate||Loan Amount||Processing Fee|
|Bajaj Finserv||19%-20%||Rs 1 lakh to Rs 45 lakhs||2%|
|HDFC Bank||16.25% – 19.40%||Rs 75,000 to Rs 15 lakhs||2%-2.5%|
|Fullerton India||21%-28%||Rs 1 lakh to Rs 20 lakhs||2%-3%|
|ICICI Bank||15%-19%||Rs 2 lakhs to Rs 25 lakhs||2%-2.5%|
|RBL Bank||18%-19%||Rs 15 lakhs to Rs 35 lakhs||2%|
5. Easy repayment
Business loans come with different repayment options as per the borrower’s convenience. The borrower and lender may work out the most viable repayment plan, keeping in mind the borrower’s business cash flows. Borrowers could choose to increase or decrease the loan’s EMI as per their profitability, or as an alternative, opt for bullet payments that permit periodic repayments. Such repayment convenience prevents financial difficulties for the borrower, and acts as a safeguard for the lender, as it ensures that the borrower can service the loan easily.
6. Business growth and sustenance
By availing business loans, businesses can conveniently meet their funding needs and manage their operations smoothly and efficiently as per their business cycles.
Further, businesses that are in the expansion or diversification mode or both simultaneously, can capitalize on the business loan in diverse ways to move up the value chain. This is because during the loan application process, lenders usually only ask for and review the business plan explaining the potential use of the borrowed funds. Their major concern is debt repayment – lenders do not have a say in business operations, they cannot specify how the business loan has to be used, nor are they entitled to business profits.
Businesses, therefore, have complete freedom to leverage the loan funds as per their exact business needs.
7. Tax benefits
Interest payments made towards business loans can be claimed for tax deductions – another major advantage. You can claim tax benefits on the interest component of the loan.
8. Strong credit rating
Business loans can be taken for large sums and can be used immediately, depending on the borrower’s requirements and a valid justification in the business plan. Taking business loans also helps establish a strong credit rating, which becomes an added bonus while securing loans in the future. This helps the business establish a strong financial reputation for itself right from the start.
Business loans for Small and Medium Enterprises (SMEs)
If your business belongs to the SME sector, there’s good news. To ensure equality and availability of business funds for SMEs, the RBI has mandated banks to treat SMEs as a priority sector, and ensure they can avail credit/funds without any of the hassles encountered in the past.
Additionally, the Indian Government has set up unique schemes to assist entrepreneurs from this sector – they are given financial support/loans, incentives and technical know-how they need to establish their businesses.
Realizing the massive growth potential in the SME sector, NBFCs have begun actively mobilizing their resources to fulfill loan requests from SMEs. Reports indicate that 50% of all SME loans will be furnished by NBFCs in the next three years, pointing to a bright future for SMEs.
While availing a business loan, it is good to have a detailed business plan – this will help you stay on track and understand how efficaciously and wisely you actually use and manage the funds. It is prudent to include detailed financial projections and marketing strategies, along with all expenses and expected financial goals.
A business loan comes with various important benefits. As a borrower, you must choose the loan wisely after a careful evaluation of your exact requirements and financial status. Most importantly, to prevent any difficulties and disputes in future, you must understand all terms and conditions of the business loan before signing on the dotted line.