Entrepreneurship has become a key growth driver in the engine of India’s economic growth. It has also alleviated the problem of unemployment to a great extent. Young professionals with great ideas are now starting their business by taking a business loan initially for setting up their operations. Many start‐ups have to take loans, since not all of them are able to get seed funding from venture capital and private equity (VC/PE) investors. Thus, only a couple of options are left for them in the likes of bootstrapping or a SME working capital loan.
You have to invest your money first, and then that investment generates returns. This is true everywhere- be it personal investing, or starting a new business. In any business, for any industry, and in any country- the entrepreneur makes the initial investment, and then after his product or service is ready, he hunts for customers to make his first sale. Business financing is one of the best options to make your dream of success a reality.
Many businesses face a common problem while starting a new company or expanding their existing operations. Do you know what that problem is? The answer is access to capital to execute what they have planned. Below we will see how the business owners can solve this problem. Capital is always one of the biggest impediments behind a great business idea. The founders have a business idea, they have formulated a plan; what they lack is just money to execute their plans. There are many options for an MSME loan in India that these founders can avail.
Benefits of taking a business loan
By taking an MSME loan for business, you are incurring a liability, there is no doubt about that. However, there are many benefits of taking a business loan that are discussed below in detail:
1. Flexible Tenure: Lenders these days offer borrowing companies the benefit of choosing the loan’s tenure based on their cash flows. As a borrower, if you want a short‐term loan, then you can opt for a working capital loan. If your requirement for money is for a long‐term, then you can take a loan with a longer tenure (5‐10 years).
2. Freedom to use money: As a start‐up, if you approach a VC/PE investor for funding, and they decide to fund your idea, they will then also interfere in your business operations. However, if you take online business loans, then the bank or NBFC (Non‐Banking Finance Company) gives you complete freedom to use it without any intervention. All they care about is just timely repayments, once it starts.
3. Convenient Application Process: These days, everything - from the loan application to its complete repayment, is done online. You won’t have to visit the bank’s branch on a regular basis. You can apply for an MSME loan with just a few clicks sitting in your office. You can upload all the necessary documents needed for the loan online itself.
4. Low Interest Rates: With more lenders in the space and government focus on boosting entrepreneurship, the interest rates on SME working capital loans are quite low currently. However, the interest rate does vary from one customer to another customer, based on his company’s credit profile (CIBIL rank)
5. No Profit Sharing Agreement: A VC/PE investor will fund you only on the condition that he will have a share in your quarterly or yearly profits. However, there is no such agreement in business financing via loan. Here, you just have to repay the amount you borrowed on a monthly basis in the form of EMIs. There are many EMI calculators available online that you can use to compute the monthly liability that you will incur. You can use this calculator by Shriram Finance to know the exact details.
6. Unsecured Loan: Unsecured loans are the ones that do not need the borrower to pledge any of his assets as collateral to get the loan. The best small business loans are the ones that do not require collateral, since many small companies and start‐ups usually do not have many assets initially.
7. Quick Sanction & Disbursal: Once you submit the SME working capital loan application form online and upload the necessary business documents, the lender will assess your application and give his approval or rejection decision on the same day. The lender sanctions the loan and disburses it on the same day. If you applied for a loan in the morning, you might possibly get the money by evening on the same day. Thus, these loans are the best option if you require emergency financing for your business.
8. Low Credit Score Loans: If your business's creditworthiness (CIBIL rank) is inadequate, you can also apply for a working capital loan. Many NBFCs offer bad credit loans. Further, taking a loan can improve your credit history if you repay all your instalments on time.
Points to Consider before taking a Corporate Loan
It would be best to consider certain factors before finalising your decision to take the best small business loans. These factors are listed below:
- Size of Loan: Now that you have decided to go for financing, it is important to determine the amount of money you need to borrow. Assess your financial need, be realistic about it, and add the loan processing fees and other charges in your calculation. You won’t be going to the bank again and again for an additional MSME loan for business, thus, don’t borrow less than what you need. At the same time, ensure that you don’t borrow a higher amount, since it will attract additional interest.
- Assess your Urgency: If you are in a hurry for an MSME loan, chances are you will end up taking a deal that is not lucrative for you in the long run. You cannot search for lenders giving the lowest interest rates, since your need is urgent. Make sure to negotiate the terms and conditions of the SME working capital loan with your lender to get the best deal.
- Read the Loan Agreement Carefully: It is your responsibility as a borrower to read the loan agreement in great detail to avoid any surprises later. Go through each and every line on the agreement, and get all your queries addressed by the relationship manager. Ensure every detail about all the terms and conditions of your working capital loan.
- Know Your Company’s Creditworthiness: Before applying for an MSME loan on any lender’s website, it is important to know your company’s creditworthiness. This is because if your credit rank is substandard, then the lender will reject your loan application, which will further exacerbate your credit ranking. If this happens, then your probability of getting a loan approved will go down further in the future. Conversely, if your credit ranking is excellent, then you can negotiate a lower interest rate with your lender on your MSME loan for business.
This was all we had for you in this article on how a loan can help you make your dream a reality. Shriram Finance offers the best online business loans at the lowest interest rates, with flexible repayment options. We lend to all kinds of businesses with minimal documentation and quick sanction and disbursal. You can read more about our business loans on this link. Allow us to serve you!