A Small Business Loan Might Actually Cost Less Than You Think

Business environments change frequently, sometimes when least expected. While some factors are beyond one's control, there are some that can be monitored to predict unexpected changes and protect businesses.

One such factor is cash resources. Most businesses, irrespective of their size, require funding at some point in time. Financial support is essential for buying equipment, paying rent, hiring new staff, buying new office space, etc. and also for expanding business and to generate higher profits.

Why Is Business Loan A Good Option?

Many businesses and companies consider equity investment for capital expansion.

Equity investment is money given to a business entity in exchange for a share of the business. Unlike traditional monthly loan repayment, such as in business loans, businesses are not expected to repay the funds they receive. It is a transaction settled in exchange for equity for capital.

However, equity infusion may not always be the best form of financial management for a business. This is especially true if interest rates are low.

A business loan is a borrowed amount of capital that is used for an investment in a business set-up.

For business loans from legacy banks, borrowers need to have a history of successful operation and may have to meet rigorous credit standards. On the other hand, non-banking finance companies (NBFCs) tend to have a more customary approach to lending to MSMEs.

Here are a few reasons why business loans are a good source of funds to expand one’s MSME:

Quick Disbursal Of Funds

Decision-making requires attention and time. And the impact of limited resources may not yield ideal results. Seeking funds through venture capital firms or angel investors may take months.

One of the benefits of business loans is that it requires minimum paperwork and no collateral for small amounts. There are also lenders that offer doorstep services. A smooth and quick disbursal process also helps the borrowers to make the right decision at the right time.

Retaining Business Equity

Investors often claim a major stake in a company's equity, forcing the borrower to become a minor stakeholder in one’s own business. But in a business loan, the borrower retains the valuable equity.

Also, since business loans are mostly unsecured, the borrower is at no risk of losing valuable assets. So, in a business loan, the borrower can secure a line of credit without the risk of ownership dilution.

Customised Terms

Most lenders offer business loans starting from a few lakh rupees to some crores, depending upon the MSME’s requirement. In addition, many lenders offer customised loan tenure and flexible repayment terms, allowing borrowers to pay equated month instalments (EMI) as per their convenience.

Improved Credit Score

A high credit score helps the borrower to negotiate a lower interest rate on loans. For young entrepreneurs with relatively small funding needs, business loans can help to build a good credit score for future loans.

Competitive Rates, Repayments

Small business loans for entrepreneurs can be availed with low interest rates. Moreover, borrowers can repay the money with excess income due to a large client or sudden burst of sales, thereby reducing the interest payment.

Conclusion

The success of a business depends on a number of things, and funds are one of the most important of them all. One can get funds via equity or debt.

In the current competitive world, small business owners can access capital for expansion or even to tide over temporary cash-flow disruptions by availing credit from banks and NBFCs such as IIFL Finance through a swift, no-hassle process. Most importantly, this ensures they don’t lose control of their company.

IIFL Finance offers a wide array of business loans at an affordable interest rate starting at just 12.75% per annum. Its dedicated loan experts guide borrowers through every step of loan application. All one needs to do is to submit an application, share required documents and get the loan sanctioned and disbursed straight into the bank account.