All You Need to Know: Why are Business Loans Financially Beneficial?

It is not uncommon for businesses to require more assets, employees, and new premises. What should be the best course of action to acquire these? How can you expand your business if you do not have the funds? The simple solution to this is a business loan.

The primary goal of a business loan is to provide aid for the required expenses and demands of a business firm or company. Business loans are the best source of capital for covering business expenses. There are many financial advantages to taking out a business loan. Here are some of the advantages of business loans.

What are the financial benefits of a business loan?

They have flexible terms and principal amounts.

The loan amount and tenures on business loans vary depending on your professional/financial needs. When it comes to the loan tenure, there are long-term and short-term loans, diverging when it comes to the amount and the timeframe. You can choose the loan that best suits your official and business interests. Short-term loans usually have a tenure of 1 year, while long-term ones can extend up to 5-6years or more. The flexibility makes business loans an excellent choice for consideration.

They have an affordable interest rate.

Banks and non-banking financial institutions provide economical interest rates for business and MSME loans. The interest rate is decided according to the loan tenure and your reliability. Interest rates on business loans vary from 12% to 20%. As a result, you can get a low-interest-rate loan if you have a good CIBIL score and your business has a positive cash flow. Hence, business loans are pretty affordable as far as interest rates are concerned.

There are no comprehensive eligibility criteria.

NBFCs often grant business loans without demanding too many documents. You only need to provide proof of income, business registration documents, your business’s finance books and your plan to use the loan. Additional documentation includes identity proof, address proof, etc.

Thus, newly established businesses can easily apply for MSME loans. This leverage makes it easier for you to expand your business ventures.

You get flexible repayment options.

Flexible repayment alternatives for business financing are provided by many lenders, allowing faster and simpler reimbursement. You can later draft a repayment plan which matches the lender’s requirements.

There is also an alternative for repayment. You can enrol in the auto-debit service. This allows you to transfer money digitally through Electronic Funds Transfer.

It can help you reduce your taxable income.

In the section Loan amount: Tax benefit for the loanee, tax breaks are given to businesses. The taxpayer does not necessarily have to pay taxes based on profit earned through the loan. The Income Tax Act states that financial help obtained from a business loan is not considered business income or profit. The interest amount paid on business loans from earnings is considered in the tax. Therefore, business loans are highly beneficial in this regard.

You can improve your business’ credit score.

Business loans can help you improve the credit score of your business. You will build a good credit repayment history by making on-time EMI payments. This will increase your credit score and the creditability of your business.

Many people often miss this particular benefit of business loans. However, in the long run, it will help you apply for business loans with better conditions. For example, a good credit score will help you get a loan with a lower interest rate. It can also increase the credit limit allowed for your business.

Business loans are easy to get.

Business loans are provided by many banks and NBFCs. New business owners can now avail them to maintain their ventures. You can calculate how much EMI you can afford and borrow accordingly. Furthermore, you need to provide only minimal documentation when applying for MSME loans. The verification process is also not as comprehensive.

What are the types of business loans prevalent in India?

1. Term loans

Term loans provide you with a lump sum in exchange for specific repayment terms. In most cases, the tenure for a term loan ranges from 1-5 years. While applying for a business loan, you need to mention the purpose of borrowing it.

2. Start-up loans

Start-up loans are ideal for new companies. You can apply for this loan if your business is two years old or more. These loans can be used to launch products, expand the business, hire new employees, etc.

You need to know your borrowing capacity before you apply for this loan. The lender will look into your credit profile as well as that of your partner(s) before granting you a loan.

3. Business overdraft

A business overdraft is a line of credit given by the lender to the business. It is only provided if the business holds term deposits with the financing company. The liquidity, repayment history of the business, etc., are assessed before granting the loan. 

4. Business Loans for women

Some banks and NBFCs offer different monetary schemes specifically for women. These schemes are more flexible, have a simple application process, and provide better interest rates, and other benefits.

Conclusion

The article above has highlighted the financial benefits of business loans. They allow businesses to expand their ventures without hassles by improving the cash flow of the business. Moreover, the application process for these loans is simple and fluid.

Most business problems can be solved with funds. Furthermore, to grow, a business always needs more employees, who cannot be hired without money. These issues can be solved with sufficient cash. Thus, business loans are one of the best options. 

If you wish to learn more aspects of business loans, you can visit Piramal Finances.