Business loans: Expectation vs Reality

Business Loans: Expectations v/s Reality?

Neeta is a good baker whose baked products have consistently been on high demand. She decided to open up a bakery and monetise her talent. However, Neeta was short on funds. She needed capital to buy the equipment needed for bulk production, rent an outlet for her shop, and also to hire the required staff.

Neeta was looking for funding options and that's when she came across Shriram Finance business loans. Her husband encouraged her to avail a business loan to fund for her venture. Neeta was apprehensive about taking the loan since she didn't know what to expect from it and how it worked. To educate Neeta, her husband explained the reality of a business loan so that she could get the funding hassle-free. Lets delve into the details that were discussed.

What is a Business Loan?

A business loan is a financing solution designed for businesses. The loan is available for SMEs, start-ups, and even established businesses. The loan helps businesses meet the different financial obligations that they might have.

The loan is to be paid back over a chosen repayment tenure. It attracts an interest rate which is paid along with the principal loan amount through Equated Monthly Instalments (EMIs).

Business Loans – Expectations v/s Reality

Like Neeta, many borrowers expect some things from business loans. However, knowledge of the true picture is important to understand how the loan works. Moreover, when you know about the loan, you can make the right choice. So, here are some common expectations v/s the reality of business loans.

• Expectation – A business loan is available for every business
• Reality– A business loan is available for businesses that meet the eligibility criteria

While business loans finance different types of businesses, they are issued to those ventures that meet the eligibility parameters specified by the lender. Some of the common eligibility parameters include the type of business, minimum annual turnover, borrowers age, years for which the business has been in existence, etc.

For instance, Shriram Finance Business Loans are offered to individuals aged between 21 to 70 years and partnerships, sole proprietorships, limited companies, etc. can apply for the loan.

Also, check the maximum loan amount that you can get based on your eligibility parameters so that you can apply for the relevant funds.

• Expectation – Business loans need collateral security
• Reality – Not all loans need collateral. Some are unsecured.

There are two types of business loans – secured and unsecured. While secured loans need collateral security against whose value the loan is offered, unsecured loans don’t. You don’t have to pledge or mortgage any security for unsecured loans. For instance, Shriram Finance offers unsecured business loans which do not require any collateral security.

Pro Tip: If your business is relatively new and you don’t have sufficient assets to pledge as collateral, an unsecured loan is a better choice. On the contrary, if you have assets, go for a secured loan as the interest rates are lower for such loans.

• Expectation – One loan can meet all needs
• Reality – Different types of business loans are available for different needs.

When it comes to business loans, there are different variants available. You can avail of a loan for working capital needs, for buying equipment or a vehicle, for trading, etc. As such, you can take a loan that matches your financial needs.

• Expectation – Loan sanction takes a long time
• Reality – Not all sanctions take long. Some loans are sanctioned quickly.

Many borrowers believe that availing of a business loan takes a long time but this is not the case always. Many lenders have speeded up the loan process and allow quicker disbursals. For instance, Shriram Finance offers business loans quickly so that your needs are met.

Pro Tip: Check the documents that are needed for the loan. Keep the documents handy so that your loan application is processed without delays.

• Expectation – The loan amount will depend on my needs.
• Reality – The loan amount depends on your eligibility

The amount of the loan does not depend on the amount you need. It depends on your eligibility parameters and credit score. If your eligibility and credit score are good, you can get higher loan amounts and vice versa.

• Expectation – Business loans have high interest rates
• Reality– The loan interest rate is affordable

Business loans do not have high interest rates. The interest rates are affordable so that the loan does not pinch your pockets. Secured business loans offer lower interest rates while unsecured ones have slightly higher interest rates given the higher risk of repayment default that they carry.

Shriram Finance offers business loans starting from 15%*p.a. allowing you to avail of an affordable loan and repay it easily.

Pro Tip: If you want lower interest rates you can opt for secured business loans. Additionally, if you have a high credit score, your interest rate would be low.

• Expectation – Repayment of the business loan would prove expensive
• Reality – You can make the repayment affordable

Businesses often think that repaying the business loan would add to the business expense and that the EMIs would be high creating a burden. But this is not the case. You can make the loan repayment affordable for the business. Here are some tips on how –

• The repayment tenure influences the loan EMI. If you choose a higher tenure the EMIs are lower and more affordable.
• If you have a high credit score the interest rate is reduced. This also reduces the EMI for the loan and makes it affordable.

So, you can use these ways and make loan repayments affordable.

Pro Tip: When availing of the business loan, choose an amount that is affordable to repay. Even when you are eligible for a higher loan amount, try to avoid going overboard as repayments might prove to be a problem. Borrow only what you need.

The Bottom Line

Business loans are an effective way to finance the needs of your business. With the range of loans available, you can choose a suitable option depending on your financial needs. Shriram Finance offers different types of business loans that cater to the different needs of your business. The loan interest rates start from 15%*p.a. and you can get funds up to ₹30 lakhs for a tenure going up to 60 months. The loan is disbursed within 2-3 business days so that you get the funds at the earliest.

Neeta got a loan and opened her bakery. You too can get the funds for your business and meet your short-term or long-term financial needs. Understand the loan and how it works so that you can have the right expectations from your business loan.

FAQs

1. What factors should businesses consider before deciding if a loan is a good idea?

Businesses should consider the following factors before deciding if a loan is a good idea -

• If they have sufficient funds at their disposal to meet their financial needs
• If dipping into the business funds would affect the short-term and long-term profitability
• If the business would be able to repay the EMIs on time
• If the financial need can be postponed or if the business needs immediate funds

2. What are the key advantages of obtaining a business loan from Shriram Finance?

Some of the key advantages of obtaining a business loan from Shriram Finance are as follows -

• You can get loans ranging from ₹1 lakh to ₹30 lakhs
• The loan repayment tenure starts from 12 months and goes up to 60 months
• The loan interest rate is affordable starting from 15%* p.a.
• The loan is sanctioned within 2-3 business days giving you quick funds
• There are different types of business loans allowing you to choose a loan that matches your needs
• The loans are unsecured which means that no collateral is needed for them 
• You can apply online to get the loan conveniently 
• The online EMI calculator helps you find the most affordable EMI for easier repayments 

3. Are there specific industry or sector-related considerations for business loans?

There are no specific industry or sector-related considerations for business loans. Businesses from all industries and sectors can get the loan for their financial needs. 

4. How can businesses manage loan repayment effectively to meet expectations?

There are ways to manage loan repayments effectively so that the loan meets the expectations. Some of these ways are as follows -

• The business should use the loan EMI calculator to find the most affordable EMI amount. This would help in repaying the loan without burning a hole in the business's finances.
• Setting up an auto debit facility on the current account is helpful for repaying the loan on the due date every month
• Businesses should borrow what they need and avoid taking a very high loan amount
• By maintaining a high credit score, businesses can get reduced interest rates which also reduce the EMIs making repayments affordable