Business Loans

What are business loans?

A loan is a money borrowed from banks, NBFCs, and other financial institutions to fulfill your personal and business needs. Business loans are specially designed to satisfy the financial needs of businesses. A planned loan for a business will not only provide capital to the business but also it will bring prosperity and profit. A business loan is a debt the company is obligated to repay as per the terms and conditions of a bank, NBFC, or financial institution.

Types of business loans.

Business can be secured or unsecured, former means that a borrower is lending money against some asset. On the other hand, the latter is a type of signature loan that a person lends without any asset. An unsecured loan analysis of your profile and eligibility before approving the loan. Therefore it is advisable to maintain the four C’s thus managing your profile properly before applying for a business loan.

When is the correct time to apply for a business loan

Business Loans refer to the funds that a business needs to establish itself, provide funds, and expand in the future. Renting office space, paying employees, paying for raw materials, and purchasing machinery and long-term assets are all required for a business to function.

Business Loans can be used to maintain furniture, machinery, buildings, offices, and factories, as well as intangible assets such as patents, trademarks, and copyrights.  Aside from the assets listed above, the day-to-day activities of a corporation also require cash. Business loans can prove to be a helping hand to maintain the flow of business swiftly without lacking money.

Eligibility

The eligibility for applying for a business loan is a set of documents and requirements that banks lays down for a borrower. A person willing to apply for the loan must have the following documents and should pass the minimum eligibility requirement for a business loan.

Get more information from My Mudra assistants who can clearly guide you through the process of a business loan.

       · Adhaar Card

       · PAN Card

       · Photo

       · GST Registration

       · UDHYAM Registration

       · GST Returns

       · Financial details of the company

       · Bank statement of one year

       · Details of the running loans

       · Age of the borrower should be between 21 to 60 years.

       · Tenure of the loan 3 years

What is a finance committee?

A finance committee is responsible for making major financial decisions in big companies. Among other things, they are in charge of the annual budget. While, in small companies, the owner-manager conducts the financial operations all by themselves. The lower-level staff is responsible for the day-to-day operations of business loans. They work in the sections that handle cash, receipts, disbursements, borrowings from commercial banks, and form cash budgets. It takes place on a regular and continuous basis.

Why business loans is necessary?

A business or enterprise can't run without money. For a business to grow and operate one must have sufficient cash flow. During the startup phase or throughout the business cycle, all businesses will require business loans. Depending on the need you can either apply for a microloan or a business loan to maintain the cash flow hassle-free.

Some of the benefits of obtaining business finance are as follows:·

       · With the help of business loans, entrepreneurs can kickstart their businesses. As a result of this financial assistance, they can easily purchase land for office and company assets that are necessary for their day-to-day operations. In addition to relieving them of cash concerns, they would also be able to concentrate solely on working up their business.

       · The owner's capital may not be enough for them to start their dream business. Business loans enable entrepreneurs to purchase the latest technologies and machinery. It will ultimately benefit the industrial sector by improving its infrastructure and production.

       · The availability of business loans is a significant relief for entrepreneurs in times of crisis. By doing so, they would be able to meet these sudden cash needs without compromising their business assets or personal properties.

Types of business loans

1. Equity finance: Equity finance involves providing financial assistance in exchange for assets to businesses. Depending on the investment made by the investor, the investor becomes a shareholder of the company. Investors or owners who have made equity investments are considered to have made equity investments. When investors provide equity finance, they provide monetary assistance to purchase company shares. After the business begins to prosper, it will gain a profit from the investment.

2. Debt finance: Money sourced from outside the business is considered debt finance. During an emergency, entrepreneurs can apply for bank loans or other forms of emergency capital. Whenever entrepreneurs borrow money from the bank, the borrower will be expected to pay interest. In this case, the bank won't own any shares of the company. There should be a fixed interest rate and repayment period agreed upon before the borrower takes out the loan.

Sources of business loans

1. Financing a business

It can become a challenge for entrepreneurs, regardless of their experience level. Financing a business involves a number of ties that should be carefully considered by the owner. To determine which type of financing works best for their business, entrepreneurs should examine all types of business financing.

2. External funding

All debt financing and money access require external funding. External funding can originate from banks and lending institutions. It can be described as money taken as a debt in return for interest. Funding from outside sources is beneficial when you don't want to sell company shares but need money to meet cash shortages. If you apply for External Funding, you may be required to pledge company assets as collateral.

3. Debt

Financial institutions are the most popular source of external funding for business loans. Financial institutions provide cash loans to businesses for their growth and development. The criteria for a bank loan can include eligibility, past debt, loan amount, interest rates, tenure, and more. In order to establish a business, large amounts of money are given.

4. Equity

Outside investors can also provide entrepreneurs with money. They can pitch their business idea or project to investors and request financial assistance from them. In exchange for financial assistance, investors can purchase shares of the company to contribute to the cause.

5. Internal funding

Businesses' internal funds can be increased by their owners. This method is relatively safe because it allows owners to retain their control over the company. Additionally, it can help them avoid huge debts and high-interest rates.

Top banks and NBFC to consider for business loans