Businesses require funding at various phases such as while starting on a new project, expanding operations, or recovering from losses. However, starting up a business is the part when funding seems to be almost non-existent. Entrepreneurs have to work out ways to make optimal use of their resources in every possible way. But that may not be enough. There are other ways to fund your business and one of the suitable ones is a small business loan.
Acquiring a loan from your own bank seems easy but historically, only a few fortunate ones get to avail the benefit of a small business loan. However, this scenario is changing in India because of the encouragement to SMEs through multiple government policies and schemes. Banks are also realising the unique potential of small and micro-businesses. Small business loans help your business in many ways such as financing new equipment, increasing your inventory, and funding expansion plans. Some other benefits of small business loans are explained here.
Flexibility: You can choose from various types of loans to fulfil specific business requirements. Various government schemes such as CGTMSE and other similar schemes offer business loans that are designed for MSEs for starting, expanding, or upgrading the facility. Government scheme such as CGTMSE does not require any security or third-party guarantee. The guarantee cover is provided to the financial institution by the trust itself.
Convenient Repayment: The flexible nature of business loans reflects in their repayment options as well. Banks offers such flexibility because they understand the complexities involved with businesses and their plans are designed accordingly. They may offer a repayment plan as per the cash flow to avoid the difficulties in financial management. Also, borrowers may increase or decrease the EMI as per the financial condition of the company. They can also choose bullet payments for periodic repayment.
Low Rates of Interest: Banks are different from private lending institutions and their rates of interest are also lower. It happens mostly in the case of government-backed schemes as they are designed for public welfare, not for the benefit of the financial institution. Also, rates of interest are not determined just on the basis of the loan amount. A number of factors are kept in mind such as tenure of the loan, viability of the business model, financial condition of the company, and credentials of the borrower. Other costs such as processing fee are nominal and are one-time expenses.
Easy Availability: Many banks, including some private lending institutions, offer small business loans without collateral. This makes it easy for small entrepreneurs to avail such loans and sustain their ventures. Also, EMI calculators and online applications provided by most banks on their websites have made the process much easier than it used to be.
Grow Your Business: Finance, manpower, and technology are the essential needs of any business. Among all of them, finance is a key aspect that makes it possible for a business to ensure all the other needs are met. Thus, the required cash flow can be highly crucial for expanding a business as it can be used for different purposes to grow your business. You can arrange another facility or purchase required equipment to speed up your business. In addition, owners also have the freedom to use the money as per their preference. It enables them to utilise the funds according to the needs of the business.
Tax Benefits: Small business loans allow you to save some tax benefit as well. This is because there are sections of the Income Tax Act that state the percentage of profit utilised for repaying the loan amount is exempt from the tax.