Gold Loans – A New Way To Finance Start Up Business
A strong financial backup can convert a creative idea into a huge venture. Finance is not only necessary, but also a basic requirement for running any business. A constant supply of finance in a business will help the business multiply its value and increase its worth. However, for a startup business, getting ample capital becomes a challenge. In such scenarios, entrepreneurs opt for credit and loans from different lending sources.
Out of many credible sources of loans, like business loans, and government-run schemes, gold loans have become one of the most widely used loan products in the Indian market. Because gold is a highly coveted metal, it is commonly used as a medium for investment and loan repayment. It is an ideal way to raise immediate funds for your business venture.
In this article, you will learn about the best gold loans, their features, benefits, and downsides, as well as various gold loan interest rates.
What are some of the exclusive benefits of taking a gold loan?
A gold loan provides a handful of benefits in comparison to other forms of loans.
- Lower rate of interest:
As gold loans are a secured form of loan, the rate of interest is subsequently lower than that of other unsecured loans. In India, most banks charge an interest rate starting at 7 percent per annum on gold loans.
- Lenient eligibility:
As the loan you apply for involves physical gold as collateral, the eligibility requirements are quite lenient, and you can easily get into the process without much documentation.
- No processing fee:
Another striking benefit of availing of a gold loan is that there are no processing charges involved. With that, there are no foreclosure charges, in case you want to make a prepayment or close your loan account before the tenure.
- Anytime liquidity:
Gold loans are also subject to Anytime Liquidity, or ATL, which means that by using gold as a medium of exchange for the loan, the loan amount can be disbursed within an hour. There would be no requirements for rigorous paperwork, formalities, or anything similar that would further delay the process.
- No requirement of credit history:
Unlike other loans, where a good credit history is a mandatory requirement for getting a loan, gold loans do not require a good credit history. So, this is an advantage for you if you do not have a good credit history, as gold is used as collateral, and the lender is assured about the repayment.
- Safety of the metal:
The lender must ensure the safety of the gold. A gold loan also gives you the means to store your gold safely. Banks often follow the best safety protocols to keep your gold possessions safe from theft. Most banks use a triple-layered security feature to keep your gold safe from exposure.
Gold loan for financing business:
Like other secured loans, in a gold loan, you have to use gold as collateral in return for the loan amount. This is a significant benefit, as most startups face problems when they try to apply for an unsecured loan. The interest rates of such loans are higher, and it weakens your financial muscle and increases your financial burden. A gold loan will also prevent you from sharing your equity with other companies. You can get the required funds from the loan and easily pay it off in the form of instalments.
There are various parameters that state the importance of taking a gold loan to finance your business.
- Immediate funds:
Applying for a loan against gold is the best way to raise immediate funds for your start-up business. In the event of a financial crunch, you might need a lump sum to bridge the sudden demand for money. As mentioned earlier, with physical gold as a guarantee for the loan, the amount is disbursed within an hour. So, after filling out your application and submitting your documents, the bank will disburse you the amount in no time.
- More control:
Applying for a gold loan gives you more control over your business venture. If you sell a share of your company in the form of equity to another company, you will eventually lose some control over your business. The decisions of your company will be influenced by the decisions of the shareholders. However, applying for a loan will help you invest your own money and get a grip on your company.
- Regular cash flow:
A good cash flow is a very crucial requirement that determines the sustainability of your business. A regular cash flow can help you swim through troubles like economic recession, steady demand, inflation, etc. By applying for a gold loan, you can get steady cash flow to buy raw materials and equipment, hire new employees, invest in manufacturing units, etc.
The Bottom Line:
In an era of competitive entrepreneurship, a lack of finances might stand as a huge obstacle to your business. You may have difficulty raising sufficient funds to get your business idea off the ground. To sort that out, you need steady cash flow and, at the same time, should avoid selling shares of your company. To do that in the best possible way, you need to get a gold loan at a nominal interest rate to cover your business needs.
If you want to know more about gold loans, gold ETFs, sovereign gold bonds, etc., you should prefer visiting Piramal Finance. Besides that, it also has ample content related to personal loans, MSMEs, mutual funds, GST, tax planning, etc.