Oftentimes, businesses require extra funds for expansion. In such a case, business loans in Mumbai are your saviour. With the help of additional funds, you can buy new inventory and finance working capital requirements. You must study business loans to know if it’s the right fit for you. Taking a loan without precaution can result in debt. This, in turn, will cause more damage than benefit.
According to the reports of Statista, private banks in India dominated the commercial loans market in terms of active loans or volume by around 40 percent.
For example, Risha is the owner of a nail salon in Raipur. She wants to expand her business in Delhi. For the same, she requires extra funds. A business loan at a low interest rate is the right decision for her business. The extra capital can allow her to buy the necessary inventory for the expansion of her business.
Understanding Business Loans
In simpler times, it is commercial financing businesses receive from banks, NBFCs, and credit unions. These extra funds are utilised to grow and operate businesses effectively. These can vary, from working capital and purchasing inventory to larger purchases like real estate.
How Do Business Loans Work?
Business loans provide business owners with the freedom to use funds anywhere. In return, the business agrees to repay the capital after a period with interest and fees. Based on what kind of loan, the lender asks a borrower to repay either weekly or monthly.
In addition, business loans are subdivided into secured and unsecured. Secured loans require collateral, which the lender can undertake if you fail to repay. These assets can range from property, capital, and equipment to investment.
On the other side, unsecured loans do not require collateral. Instead, you must sign a personal guarantee agreeing to accept personal liability if the business doesn’t repay its debt as promised.
What Are Business Loans Used For?
Business loans can be a boon if used wisely. When you apply for financing, however, you will usually need to let the lender know how you intend to use the funds. Some of the common uses of business loans include:
-
The cost required to begin a startup
-
Buying or purchasing of real estate or property
- The flow of capital for everyday activities
- Debt consolidation or debt refinancing
- Purchasing of inventory
- Purchasing of equipment
- Business acquisitions
- Expansion of the business
- Franchising of the business
- For marketing & advertising
- Business refinancing
At times, lenders restrict the borrower from using a business loan for personal reasons. Personal expenses may include personal vehicles, home purchases, and personal costs that are not business-related.
Various kinds of Business Loans
Each business has different and unique needs. You must know your business before taking a loan. An assessment of the current financial health of the business would help you understand better your needs.
There are various kinds of business loans available in the market. If used cautiously, these business loans can be beneficial to your business growth. Some of the business loans are mentioned below:
SBA Loan
An SBA loan is a kind of financing that allows a sum of capital borrowed through loan programs. In an SBA loan, the risk is typically reduced for the lender. Usually, the rate of interest on SBA loans is lowered. Such loans also offer a flexible time for repayment. This repayment period can go up to 25 years.
However, SBA loans usually have strict requirements for qualification. You should maintain a good credit score to increase the chances of approval. A good credit score lies between 680 and 720, depending on what kind of loan you are taking.
Term Loan
Another famous business loan is a term loan. This is general business financing which is repaid over a certain period. A term loan is easily obtained from a conventional bank or a trusted online lender. If you are a new business owner, the chances of your business approval are high. This is because new business owners have flexible qualification requirements.
The term period of such a loan ranges up to 10 years. The loan amounts are highly flexible, from 1 lakh to 1 crore. The annual per cent range also begins at around 9%. The credit score is one of the major determining factors in which loan terms you’ll be provided with.
Working Capital Loan
If you require short-term financing, a working capital loan is the right choice. These working capital loans help you with your daily operational expenditures. This loan is particularly beneficial for seasonal businesses. Such businesses gain an advantage from working capital loans during slow seasons when you want to manage a capital flow is a challenge.
The conclusion
To sum it up, business loans are highly advantageous if you require urgent capital. However, if you are careless, this can lead you to a pile of multiple debts. Business loans at low interest rates can promote the growth and expansion of your business. It helps in buying new inventory and managing cash flow. Thus, you should assess your requirements before taking a loan to enjoy its benefits to the maximum.
