There are stages of a business cycle when you hunt for financial opportunities to fuel the development of your small or medium level innovativeness. To a certain extent, your business needs that extra thrust to take it to a new level of growth. In a rigid economic environment and an ever-mounting economy, you would not want to lose any business prospect that comes your way. To achieve this, companies take out business loans to gain the financial assistance they need.
What are business loans?
To begin with, we should understand what business loan means. To elucidate, a business loan is a debt, taken by a company and is obligated to pay back the loan according to the state of affairs. In layman’s terms, a business loan is an amount of money loaned out from a financial institution by a business individual to start, run, or expand a business.
Who can apply?
Big or small business, there are no restrictions for the businesses to apply for a business loan.
Why business loans?
Business loans help with the money movement and help to tide over when the business faces financial issues. Business loans are more useful for paying for assets like computers, vehicles and can be used as start-up capital when starting a new business.
A variety of loan options are available to choose from for businesses. The most popular source of funding is Line of credit loans, Installment loans, Balloon loans, Interim loans, Secured and Unsecured loans, Letter of credit etc.
Banks or lenders do not give out loans for free. Interest is charged on the loans as a fee paid for borrowing the money. One should pay attention to certain features of loan like the interest rates, payback period duration and what the lender will use as security when the business is not capable of repaying the loan on time. Also, it is important to know whether the interest rate is fixed or variable. A fixed interest rate means that the interest rate remains the same for the period of the loan and its settlement period. A variable interest rate indicates that the interest rate can oscillate based on a variety of determining factor.
The below-mentioned profiles are usually considered for the sanction of the business loans:
Self Employed Professionals (SEP) like Allopathic doctors, chartered accountants, company secretaries and architects who are active in their profession.
Self Employed Non-Professionals (SENP) like Traders and manufacturers, retailers, Proprietors, and service providers etc.
Entities like Partnerships, Limited Liability Partnership, Private Limited and closely held Limited companies.
Benefits of obtaining business loans
Here are some of the benefits of getting a business loan to up your small business, or to run or grow it are as below:
- Helps you keep up cash flow: Almost every new and small business go through this stage when they fight to uphold a positive cash flow, and at times it may end in a financial crisis or business might even go into liquidation. This problem can be solved easily with an appropriate business loan. You can maintain a healthy cash flow and drive capital using loan amount. This loan can be repaid when the business starts making profits.
- You’re not legally responsible for the failure of the business: If you own a business entity with some degree of liability, you’re not answerable if the business is unsuccessful. You can clear up your company to recompense the creditors. This is of use to the business owners, as they can work stress-free, while the others live in a continuous panic of going penniless if the business nose-dives.
- Business loans come with reasonable interest rates: Business sponsoring, especially secured business loans typically come with low-interest rates. You can get these loans to grow your initiative without making a big hole in your pocket. The investors are usually involved in the business and wish it to succeed. If you have a complete business plan organized, they will be keen to provide you loans. Many business-focused financiers seek business plans from the pledgers to approve a loan.
- You do have many options to choose from: The businesses have various choices of creditors as well as loans to pick from. You can choose an investor based on certain reasons such as – the sum of money you need, rate of interest, terms and conditions, penalties for late payments, processing fees, and others. You can also apply for business loans online on online lending platforms, where you can find numerous funding possibilities at one place where you can relate them and choose the best according to your needs.
Things to remember
Loans with high-interest rate should be paid back as quickly as possible so that the interest owed does not acre into the excessive amount. This type of loans is best suitable for short-term financing needs.