Unlocking Opportunities with Business Loans
Capital is needed to start and expand a business. Finding the correct funding option is critical for success, whether you operate a small business or are an aspiring entrepreneur. While there are other ways to receive financing, business loans remain the most practical alternative. In this in-depth look at business loans, we’ll discuss why they’re still a popular option and understand the many components that come with them. But first things first –
What is a Business Loan?
A business loan is a financial instrument entrepreneurs can use to meet unexpected and anticipated costs. It is borrowed money a firm employ to meet short-term expenses they cannot afford.
Loans are not free. Lenders charge interest on loans as part of the cost of borrowing money. It’s critical to understand if the interest rate is fixed or variable. A fixed business loan interest rate does not vary during the life of the loan or the repayment term.
The Benefits of Business Loans
Business loans offer numerous advantages that make them an attractive option for entrepreneurs. Here are some key benefits:
- Access to Sufficient Capital: Business loans provide access to the necessary capital to fuel your business’s growth and expansion. Whether you need funds for inventory, equipment, hiring employees, or marketing campaigns, a business loan can bridge the financial gap and enable you to seize opportunities.
- Flexibility in Use: One of the significant advantages of business loans is the flexibility in their use. Unlike some financing options, business loans do not come with restrictions on fund utilisation and give entrepreneurs the freedom to allocate funds according to their specific business needs.
- Build Business Credit: Taking out a business loan and consistently making timely repayments can help establish and improve your business credit score. A good credit score opens doors to future financing options and favourable terms, allowing you to secure additional funding at competitive rates.
- Maintain Ownership and Control: While seeking investments from investors requires one to give away equity, business loans allow you to maintain full ownership and control over your business. You can take decisions independently and run your business according to your vision.
Also Read: The Ultimate Guide to Sources of Finance for Startups in 2023
Types of Business Loans
Various types of business loans are available, each tailored to different business needs. Understanding these options will help you choose the right loan for your business. Here are a few common types:
1. Term Loans
Term loans are the most traditional type of business loan. They involve borrowing a lump sum amount and repaying it over a fixed period with regular instalments. These loans are ideal for long-term investments, such as purchasing equipment or expanding your business premises.
2. Startup Loan
As the name implies, a startup loan is appropriate for entrepreneurs looking to establish a new company endeavour. Because their firm lacks business vintage, these candidates need a flawless credit history.
As a result, lenders analyse the borrower’s personal credit history in addition to the company’s when determining the individual’s eligibility for a business loan. Lenders analyse current turnover data and other financials for determining loan size, duration, and relevant business loan interest rates.
The applicant must first establish his or her firm before requesting a loan. Proof of business existence and registration must be given at the time of application.
3. Working Capital Loan
Working capital loans enable businesses to overcome financial difficulties and satisfy day-to-day company needs. This business loan can help manage cash flow, pay employees, increase inventory, buy raw materials, invest in machinery/equipment, etc. When there is an unexpected need for cash, a working capital loan can come in handy.
Working capital loans are available to traders, merchants, manufacturers, and other companies involved in import and export. A working capital loan has a short payback term of up to 12 months. Furthermore, because it is a collateral-free loan, the borrower is not required to pledge any property or asset to the lender.
4. Equipment Financing
When your business requires new machinery, vehicles, or technology, you can raise the necessary funds via equipment financing. This type of loan allows you to acquire the equipment your business need and repay the loan over its useful life.
5. Invoice Financing
Invoice financing, also known as accounts receivable financing, enables you to borrow against outstanding invoices. This type of loan provides immediate working capital by converting your unpaid invoices into cash.
6. Loan Against Property
When your business requires a loan of more than Rs 50 lakhs, you must consider raising funds via a loan against property. You can use a property as collateral for this form of loan. A loan secured by real estate has a payback term of 10 to 20 years.
To obtain financing through this business loan, one must mortgage the property. The borrower can give any form of property as security. It might be either residential or commercial. In most cases, the lender will lend 70% of the property’s worth. However, the property supplied as security must be free of any dispute.
7. Business Overdraft
Only when a company has established deposits with a financial institution can it obtain a business overdraft. To grant this loan, the lender examines the business’s repayment history, cash flow, set deposit terms, and other factors. The borrower can withdraw the appropriate amount and pay interest solely on the amount used with this loan.
8. Business Credit Card
A company credit card is ideal for meeting short-term requirements. It allows enterprises to access funds when they are in desperate need. Customers receive several perks from business credit cards, like credit points, cash back, insurance coverage, etc. The interest rate on this sort of financing is significantly higher. As a result, a company credit card should be used only as a last choice.
9. Cash Advance for Merchants
A merchant cash advance allows businesses to get a capital advance on their daily debit and credit card transactions. The advance must be repaid using a portion of the borrower’s daily credit sales. It is critical for organisations that choose this sort of business loan to have enough cash flow to cover the repayments. A merchant cash advance offers the advantage of requiring the borrower to pay based on daily sales.
10. Business Loan for Women
Some banks and lenders provide a special funding strategy for women entrepreneurs. The goal is to support women who are starting small to medium-sized enterprises. Flexible loan quantities, interest rate reductions, and speedier loan processing are examples of such specialised perks.
Also Read: Take Smart Investment Decisions! Consider These Things Before Going to an Investor
Why Are Business Loans Still the Most Viable Financing Option?
Business loans remain the most viable financing option due to several factors. Let’s explore why entrepreneurs choose business loans over other forms of funding:
1. Versatility and a Wide Range of Options
Business loans come in various forms, offering a range of options to cater to different business needs. Whether you require a small loan for day-to-day expenses or a substantial amount for expansion plans, there’s a business loan available to suit your requirements.
2. Ease of Access
Obtaining a business loan has become increasingly streamlined in recent years. Financial institutions and alternative lenders offer simplified online business loan applications, quick approval processes, and convenient access to funds, allowing entrepreneurs to secure the financing they need.
3. Competitive Interest Rates
With the market becoming more competitive, lenders are offering business loans at competitive interest rates. By comparing loan options and negotiating with lenders, businesses can find loans offering favourable terms and rates that align with their financial goals.
4. Ability to Manage Cash Flow
Cash flow management is crucial for the sustainability of any business. Business loans provide the necessary funds to cover expenses during periods of low cash flow or when waiting for invoices to be paid. It allows businesses to maintain operations smoothly and seize growth opportunities without disruption.
5. Business Growth and Expansion
Business loans are often utilised for growth and expansion initiatives. Whether you’re looking to open a new location, hire additional staff, invest in marketing campaigns, or purchase inventory, a business loan can provide the financial support to make these aspirations a reality.
6. Building and Strengthening Credit
Taking out a business loan and repaying it is an effective way to build and strengthen your business credit profile. Positive credit history will enhance your credibility and increase your chances of securing future loans or credit lines at favourable terms.
Paytm Business Loan – The Best Business Loan in India
Paytm, one of India’s major digital payment startups, has teamed with scheduled commercial banks and non-bank financial organisations (NBFCs) to offer collateral-free fast loans at low-interest rates. It also provides a one-of-a-kind daily EMI product for small retailers. Loans are available through the ‘Merchant Lending Programme’ on the Paytm for Business app.
Paytm Business Loan Eligibility
To be eligible for a Paytm business loan, merchants must meet the following qualifying criteria:
- The applicant must be an Indian citizen.
- They must have a consistent stream of revenue.
- They must be equal to or older than 25 years in age but not older than 60.
- They must have a high credit score and a relationship with Paytm. The higher the credit score, the greater the chances of acquiring a suitable loan amount.
How to Get a Business Loan in India from Paytm?
Follow these steps:
Step 1: Install the Paytm app on your smartphone.
Step 2: In the application, go to the tab labelled “Business Loan.” You can go to the corresponding tab.
Step 3: After completing this form, proceed to the following page, which requests the loan amount.
Step 4: Using the slider, choose the loan amount and the loan payback duration.
Step 5: Begin your loan application after deciding on a loan amount.
Step 6: Complete the KYC by visiting the local KYC centre.
Step 7: Once the KYC is done, the representative will initiate the loan procedure.
Step 8: Once all the papers have been reviewed and authorised, the loan amount will be disbursed to your Paytm account.
FAQs about Business Loans
Here are some frequently asked questions about business loans:
Q1. What is the minimum credit score required to qualify for a business loan?
The minimum credit score requirements for a business loan vary depending on the lender and the type of loan. Generally, a credit score of 600 or higher is considered favourable, but some lenders may require a higher score.
Q2. What documents are typically required when applying for a business loan?
If you wish to apply for a business loan, you need to produce papers such as business financial records, tax returns, bank statements, evidence of ownership, and a business plan. Specific criteria may differ based on the lender.
Q3. How long does it take to get approved for a business loan?
The approval timeline for a business loan can vary. It may take anywhere from a few days to a few weeks, depending on the lender’s review process, the complexity of your application, and the amount of funding you need.
Q4. Can I get a business loan if I have a low credit score?
While having a low credit score may limit your options, some lenders specialise in providing business loans to individuals with less-than-perfect credit. These loans may come with higher interest rates or additional requirements.
Q5. Are collaterals required for a business loan?
The collateral requirements for a business loan depend on the lender and the type of loan. Some loans, such as secured term loans, may require collateral, such as business assets or personal assets. Other loans, like unsecured lines of credit, may not require collateral.
Q6. Can I use a business loan to start a new business?
Yes, it is possible to use a business loan to start a new business. However, lenders often prefer to lend to businesses with a track record and established revenue. For new businesses, alternative financing options or personal loans may be more suitable.
On a Concluding Note
Business loans remain the most viable financing option for entrepreneurs due to their versatility, accessibility, competitive interest rates, and ability to support business growth and expansion. By understanding the various types of business loans available and meeting the eligibility criteria, entrepreneurs can secure the necessary funding to fuel their business ambitions. Whether it’s managing cash flow, purchasing equipment, or investing in marketing initiatives, a business loan can be the key to unlocking growth and success.
Also, you can consider Paytm Business Loans for your business finance needs. It is a great alternative to the standard loan application process followed by the banks. It is a fantastic source of emergency financing when you need business or operating capital.
Since introducing the business financing option, the Paytm app has catered to small and medium-sized enterprises. It has resolved cash flow issues, a big worry for such businesses. It is one of the simplest and fastest ways to get funds for your company’s requirements.
