Businesses must grow to survive. No company can make it in today’s competitive marketplace without boosting sales and profits. From small startups to established companies, every business needs capital to transform ideas into reality.
But between complex loan options and intimidating lenders, many Indian entrepreneurs struggle to secure financing that fits their needs. This article simplifies the essentials – explaining business loans, outlining the main types, describing advantages over other funding, and introducing government schemes for entrepreneurs.
If you need funding to jump-start or grow your Indian business venture, continue reading for an informative overview of business loans. This will help you make better-informed decisions.
What is a business loan?
A business loan is a sum of money given to a company that can only be used by that business for its operations. One aspect of a business loan is repayment, as the borrower must repay the loan’s principal plus interest at the end of the repayment period.
India has several options for business loans, including banks and NBFCs (Non-Banking Financial Companies). The primary objective of a business loan is to fulfil the urgent requirements of a growing business.
All types of businesses, including sole proprietorships, partnerships, self-employed people, and retail establishments, are eligible for these loans.
Factors like company turnover and credit scores help lenders determine if a business owner is creditworthy. Hence, one can get low credit business loans as well. However, entrepreneurs and businesses are required by law to use the loan funds only for company-related expenses and not for personal spending.
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Different types of business loans
No two companies have the exact same capital requirements since businesses operate in a broad spectrum of industries. By offering specific business loans, financial institutions guarantee they can meet the funding requirements of every kind of business. In India, entrepreneurs may choose from a variety of popular business loans.
Term business loans:
These loans are simple, only available for a limited time, and have no extra perks. A loan term of 1–5 years is typical for this kind of loan. The borrower must specify the intended use of the loan, and the company’s credit score determines the approved amount.
Working capital loans:
Working capital company loans are short and typically range from one to five years. On the other hand, business owners use these loans to pay for immediate current responsibilities, such as rent or employee wages, and upcoming costs.
Commercial business loans:
Companies with high turnover rates often seek commercial business loans to meet their capital requirements. With these loans, you may promptly get up to a significant amount of funds and pay it back over three to five years. Businesses with a year of profitable operation are eligible for the loan.
Start-up loans:
Businesses in India may now get startup loans to help them grow their firms, thanks to the rise in popularity of these initiatives. In addition to providing borrowers with repayment options, these loans do not demand the pledge of any significant asset.
Loans for equipment:
With this company loan, owners may quickly get the money they need to invest in items like new machinery or cutting-edge electronics. However, company owners can use the money for anything they see fit.
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Business loan benefits
Advantages in terms of taxes:
In many cases, interest paid on business loans may be deducted from taxable income. Find out whether you qualify for a loan and the maximum business loan interest rate before applying.
Financial assistance for operations:
Increasing your working capital with the funds from the business loan could be a great solution to your liquidity challenge. It is possible to cover immediate expenses and keep the business running smoothly without tapping into the emergency fund.
A variety of choices:
Most financial institutions provide many different business loan programmes to meet the needs of their borrowers. Loans for machinery, term loans, and businesses might all be available.
Processing time:
Since business loans are usually approved quickly and with little paperwork, a company may keep running and expanding without setbacks.
No need for collateral:
Sometimes, business loans are given out without requesting collateral if you fulfil all the necessary criteria. Unsecured business loans might be an excellent option for startups and small businesses without a lot of collateral.
An improved credit score:
Obtaining a business loan also helps the company’s credit score. Paying invoices on time and repaying the loan before the agreed-upon date can enhance your credit score. As a result, you’ll be able to get lower-interest business loans in the future when you need more capital.
Maintaining equity:
A potential investor will want a share of your business’s revenue. That isn’t how a business loan works. Due to the fixed nature of the repayment schedule, the principal and interest will remain the same regardless of the performance of your business in making the most of the borrowed funds.
Different terms:
You are given the option to decide how long the loan will be. If you need a short-term loan for your company to pay working capital requirements, you may get one for a year. To fund your business’s growth, you can get a long-term business loan, such as a four-year loan.
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Top government business loans
Among the many excellent Indian government business financing plans, these stand out:
Pradhan Mantri MUDRA Yojana (PMMY): The initiative is primarily meant for women-run businesses, especially in the service and retail industries. Borrowers can extend the repayment time, and the loan comes with a collateral-free lending option under the plan.
MSME Loan Scheme in 59 Minutes: Any new or old business may apply for a loan of up to one crore rupees under this business loan plan. Loan processing typically takes between 8-12 days to complete. Additionally, the application review process takes no more than 59 minutes.
National Small Industries Corporation: For business owners hoping to get funding in areas such as technological devices, promotional activities, finance, etc., this plan is a lifesaver. The marketing support scheme and the credit support scheme are two options from NSIC.
Conclusion
Business loans help Indian businesses grow in different ways and in different situations. They give them the money they need to do more things, buy more, and pay more.
Borrowing money needs a careful repayment approach, but smart business funding can improve a business’ trajectory. With this business loan overview, entrepreneurs can find the most suitable financing to turn their aspirations into reality.
