Business Loan FAQs: Get Answers To Your Business Loan Queries
Financial institutions like banks, non-bank financial companies, and other types of financial institutions can give loans to different kinds of businesses. There are many ways that business loans can be changed to meet the needs of growing businesses of different sizes. If you use these loans, your business will have the competitive edge it needs to do well in the world of competition we live in today. Giving loans to businesses helps them create new jobs, which has a direct effect on the economy of the area.
Getting a business loan is the easiest and most obvious way to get a lot of cash flow. Business loans are a good choice if your business is ready to start, grow, or expand. In this context, you should know how various business loans can help.
How do Business Loans help?
The loan industry helps a lot of businesses get the money they need in different ways. Business owners can get loans from non-banking financial corporations, traditional banks, government agencies, and even the crowd.
Here are some ways in which business loans can help you and how business financing can help you:
- More funding and advertising
Every business wants its brand name to spread on social media like wildfire. If you have enough money, you’ll have more chances to market yourself, use good methods, and make good commercials.
There are many kinds of loans that can help people run their businesses well. A long-term loan is for a long period, while a short-term loan is only for a certain amount of time. The owner of a business can use a loan for their business, for their own needs, or a mix of both.
- Free of liability
Most of the time, a business borrower doesn’t need to have collateral or make a certain amount of money before applying for a loan. Too will be very helpful for a small business that is just getting started because it will meet the business’s needs and help it grow sustainably. Some places that lend money to businesses don’t ask for collateral. Small business owners will find it easier for the money to stay in business.
- Easy & flexible payment choices
For business financing, there are several flexible ways to pay back the loan. This means businesses will be able to make the repayment in a short time. This is because they will know how to pay back the loan.
What are the different types of Business Loans?
There are two main types of business loans, which are explained below:
- Secured Business Loans
Secured business loans are a common way for small businesses to get money. This kind of loan is safe if the borrower promises to pay it back or puts up assets or property as security. Collateral is a good way to show the lender that you will pay back the loan within the agreed-upon time frame. It also makes it clear that the lender has every right to take the security if you can’t repay the loan on time.
- Unsecured Business Loans
Without having to put up any collateral, unsecured business loans can help both new and old businesses get the money they need to succeed. Collateral is something valuable that the lender can take back if the borrower doesn’t pay back the loan. Most of the time, lenders require borrowers to sign a guarantee. This is a legal contract that says the borrower must pay back the debt with their own money if the business can’t. When the loan is paid back completely, the personal guarantee is taken off the account.
The best-unsecured business loans let businesses get money quickly, cheaply, and with the fewest requirements.
What makes you eligible for Business Financing?
People who meet the following eligibility criteria can apply for business financing:
- The minimum age is 18 years old, and the maximum age is 65 years old.
- Individuals, sole proprietorships, partnerships, public & private companies, limited liability partnerships, retailers, traders, manufacturers, and other businesses that only work in the service, trading, and manufacturing sectors.
- At least one year’s worth of business experience.
- Existing businesses must make at least Rs. 12 lakh in sales each year. This amount can change depending on the lender.
- The person applying must own a home, office, shop, or godown.
- A credit score of at least 750.
Documents required for Business Financing
- Completed application form with two passport-sized photos.
- KYC documents of applicants, partners, and co-applicants: Passport, Aadhar Card, Voter ID, PAN Card, driving license, and utility bills.
- Proof of income with the last six months’ bank statements.
- Business registration certificate, business PAN card and address proof.
- Any other document required by the bank/NBFC.
What are the various Interest Rates on Business Loans?
Interest rates are classified into two types for business loans: those that go down over time and those that stay the same. These are fully explained here:
- Reduced Balance Interest Rate
The “reducing balance rate” is the interest rate that is calculated each month based on how much of the loan is still owed. Here, the EMI includes both the amount of the loan and the interest that is due each month. The amount still owed on the loan goes down after each EMI payment. So, the interest rate for the next month depends only on how much is still owed on the loan. This interest is found by multiplying the interest rate by how much is still owed on the loan.
- Flat Interest Rate
Over the length of the loan, the flat interest rate is applied to the whole loan amount. It doesn’t take into account that the monthly payments will lower the principal amount and, in turn, the interest rate. So, the nominal flat interest rate is much lower than the effective interest rate.
Interest Payable per Payment = (Original Loan Amount x Number of Years x Interest Rate p.a.) / Number of Payments
This is how you find the fixed rate of interest.
Most business loans have interest rates between 15% and 24% p.a. The final interest rate depends on the borrower’s profile, credit score, finances, existing debt, business stability, the outlook for the industry, and several other risk assessment factors.
Business loans give firms the ability to expand their operations without any interruptions. During financial distress, the benefits of business loans are multifarious. Such loans provide a boost to your financial repository. These loans ensure that your business meets the desired expectations. They also ensure that your personal wealth remains unaltered.
To learn more about business loans and their vast benefits, check out relevant blogs on Piramal Finance. You can also go through the different services and products offered by them for better insight.
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