Benefits of taking a business loan
A business loan is a loan obtained to carry out any business activity or else expand business activity. Business loans are beneficial in multiple ways as business loans help an individual or a group of partners to earn maximum profits out of the business activity. The business loans help purchase new machinery, space for the office, factory, or go-down. The banks can provide a loan of a maximum of Rs.75 lakh to the entrepreneurs depending on the borrower’s repayment capacity. The tenure of the loan is 5-7 years, in which repayment needs to be done. Banks offer loans at interest rates of 11%-24% per annum. Sometimes banks or any other lending financial institutions may charge even higher interest rates on an unsecured loan. The public sector banks or else the private banks offer loans with the proper documentation only. Like a few of the NBFC’s or cooperative credit societies, the other type of institutions provides loans more lenient to the lenders. As the non-performing assets of the banks are increasing very rapidly, banks are extra cautious about extending the loans to the borrowers.
Business loans are amongst the riskiest loans as the chances of default are very high. And banks have a lesser scope of recovery of loans as some amount which gets utilized by the businessman is already spent in paying the dues of the suppliers, paying rent, paying rent, and the funds are replenished, thus leaving lower scope for the lender to recover the funds. The maximum defaults of the banks are amongst the business loans only. The bad debts are sometimes non-recoverable. Thus while applying for the loans, the balance sheet should be transparent, and in the case of an existing business, the business should be profitable. The banks also do check the credit score of the borrower before providing the loans. Business loans are used to stock up the inventories, pay the rent, electricity bills, salaries of the employees, buy a new property for business purposes, or buy new equipment or else machinery. Opting for business loans can help borrowers take the business to the next level and increase the turnover and profitability of the company. The government of India is taking a significant initiative for the disbursement of the loans with the help of private banks, public sector banks & cooperative banks to help grow business activity across the country and help generate more employment in the country.
Following are the benefits of the business loans:
· Flexibility on the usage of funds:
The borrower for the business purpose can utilize the funds by their own choice. For example, by their choice, the borrower can use the funds for the renovation of the shop or office space, purchase of new office, shop or else go-down, acquisition of new machinery or else for paying the salaries of the employees paying rent or else electricity bill.ETC. The usage of funds obtained is not rigid, and the borrower can use funds according to their choice.
· Reasonable interest rates:
The returns obtained on the investment of the borrower can be very high. Thus the interest rate charged in the range of 11-24% is highly affordable as the returns obtained by the borrower can go up to 100% as well. Thus paying the interest rates of 11% minimum is not a big deal for the borrower
In the case of investor funding, the borrowers need to share the profits with the investors. While as in the case of the loans, the borrower does not has to share the profits with the lenders. Thus obtaining the loans is a better option rather than getting the investor on board.
· No collateral required:
The banks do not require any collateral for the business loans as the business loans are unsecured. Thus business loans are very attractive for small-scale entrepreneurs.
· Multiple options to utilize the funds:
Banks do not ask for the usage of funds from the borrower. Bank only expects the repayment of the loan’s installments on time. Thus the borrower is free to use the funds for business purposes as per the choice.
· Quick disbursal of loans:
The business loans are quickly disbursed by the lenders after the completion of the formalities of the loans. Within a week, loans can be disbursed by the banks to the borrowers.
· Improved business credit:
By opting for the loans, the borrower’s credit ratings may get improved. Thus it can be beneficial for the long term to the borrower to avail any loans. Thus, increasing the borrower’s creditworthiness is beneficial by opting for credits frequently and repaying them on time.
Thus there are multiple benefits of obtaining loans from a bank or a financial institution. The banks are keen to provide loans for business purposes as the market finance is highly competitive. Only the basic formality which the borrower requires is the proper documentation and also a good credit score while applying for the loans.