Before the opening up of the Indian economy in the 1990s, banks were not very aggressive in approving unsecured Business Loans. People used to do business either with their capital funds or borrowings from friends and relatives.
Yes, equity was an option, but it was available only to the more prominent and established businesses. New start-up businesses could never dream of having access to equity. Hence, applying for Business Loans was a challenging task.
Of course, you need capital to start a business. It is your contribution towards the business. However, no company in the world can survive on capital investment alone. You need to grow and expand. Doing business with your money alone will lead to stagnation of the company. You need an infusion of external funds, either through debt or Car Site equity. As you expand your business, you have to manage issues like managing payroll, hiring new employees, investing in new machinery/equipment, financing future sales, maintaining inventory, and so on. For all these, you can use Business Loans to your advantage.
The large corporates or the established businesses can raise funds through equity. Smaller companies have to pay a higher cost to have access to equity funding. Also, equity funding dilutes your ownership in the business and affects your control over the industry. As a result, your profits suffer. Hence, the best option left for small businesses is to opt for the unsecured Business Loans. Let us look at some of the advantages of using Business Loans for New Business.
· Financial advantage
One of the most significant drawbacks of equity is that you relinquish your complete ownership rights. Secondly, equity financing is an expensive proposition. Investors in your business expect a higher return on their investments as compared to the cost of bank financing.
· Easy planning
Budgeting is easy when you have to deal with debt as compared to equity financing. You know the extent of your liabilities in advance. They come with an underlying fixed rate thereby help you to forecast accurately.
· Easy availability of unsecured Business Loans
The Indian economy has come a long way since the days of the liberalisation. Banks are now willing to finance businesses Used Car without collateral. The Government of India has played its part by setting up the Credit Guarantee Trust for Small and Micro Enterprises (CGTSME). By paying a nominal premium and guarantee fee, businesses have access to funds up to Rs. 100 Lakhs without having to provide collateral. The rates of interest on such CGTSME loans are also reasonable.
· Variety of financing options
Banks and NBFCs (Non-Banking Financial Companies) have various products in the Business Loans category. They include term loans for purchasing land, construction of factories, purchase of machinery and equipment and so on. You have products like cash credit facilities to cater to working capital requirement.
Other options include bills discounting, letters of credit, invoice factoring, and so on. Equipment manufacturing companies have options like lease financing. It allows you to purchase the equipment by paying a token advance. You can use the machine while repaying the loan through EMIs. Over a period, you own the machinery.
· Growth flexibility
Bank financing allows you to structure your debt correctly. It helps you achieve your business goals. It also enables you to increase your capacity to do business. Banks have flexible repayment options. You can trust your banks to restructure or reschedule your loan instalments in case of the recession in the industry.
· Plan for contingency
It is always better to use Business Loans for developing your businesses. Yes, you have your funds as a capital investment. But, Business Loans are still better for contingency planning. You have various options before you to raise funds in an emergency. Business Loans help you to manage your cash flows better.
· Build up a good reputation
Repaying your Personal Loans on time helps you build up your personal credit profile. Similarly, repaying Business Loans help you build up an excellent reputation in the market. The better your repayment record, the easier it becomes to get new finance.
We have seen how you can use Business Loans to your advantage. Remember, you need funds after you reach a specific level in your business. The loan option gives you the encouragement to expand your business and increase your profits.
Also Read: Tips for Tackling Financial Issues for Women
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