Useful Business Loan Tips for Entrepreneurs in India

Any business requires two things without which it can’t run: funds and vision. An entrepreneur’s dream lets them venture beyond the unknown. But that vision also needs capital to see the light of day. Many businesses fail simply because they do not have enough funds. However, to help potential entrepreneurs, banks provide business loans.

Business loans have made life easy. They provide a chance for budding businessmen and businesswomen. But like any other loan, there are a few things to keep in mind. Let’s understand what business loans are and look at some business loan tips for entrepreneurs. 

What is a business loan?

A business loan is only given out for business purposes. One can say that these are lending agreements between the borrower and the financial institution. The borrowers are business owners. Banks give out business loans based on the business proposal.

Business owners take business loans to raise capital or fund their businesses.

However, they are required to pay the principal amount and interest for the business loan to be repaid.

What are the different types of business loans?

There are many business loans given to entrepreneurs. And in today’s world, where things change constantly, choosing the best business loan may seem tricky. But here is a simple point. Analyze the nature of your business and take a loan accordingly.

Here are ten different types of business loans that you can choose from:

1. Term Loan- This is one of the most common forms of business loans. It can be secured or unsecured by nature. It can only be used for specific purposes. 
2. Start-up Loan- It is given to those who are just starting a business. They may or may not have a credit history. Lenders consider the profile of the applicant and the idea of the business when giving out this loan. 
3. Working capital loans- These are given to overcome the shortage of cash. They are also known as small business loans. It is useful for generating cash flow for the business. 
4. Loan against property for SME- It is a type of secured loan. The property is kept as collateral. It is useful to those businesses whose requirements exceed Rs. 50 lakhs. Lenders give money after a property valuation. It is almost 70% of the market value. 
5. Invoice financing- It is mostly given to small businesses. Such loans are given when there is a lag in raising invoices and receiving payments from clients. 
6. Business loans for women- Female entrepreneurs who wish to establish businesses can apply for this loan. It has flexible loan amounts, reduced interest rates, and is disbursed quickly. 
7. Equipment financing- Loans are given for machinery. This equipment is kept as collateral. It is also one of the most preferred forms of loan. 
8. Overdraft- It is given against collateral on fixed deposits. The respective financial institution gives a line of credit depending on the borrower’s credit history with the bank. 
9. Merchant cash advance- Lenders gave an advance on the capital. Borrowers are required to pay back as per their daily sales. 
10. Business credit card- These credit cards allow entrepreneurs to use funds immediately. It is a good short-term option. However, the interest rates would be high.

You can see that there are a range of lending options available to entrepreneurs. But each business has its challenges. And financing is one of the most important aspects. Let’s move on to knowing some business loan tips for entrepreneurs.

Business Loan Tips for Entrepreneurs

1. Be clear about why and what type of business loan you are seeking. Identify the nature of your work and its needs. If you do not analyze these two aspects, there is a high probability that you might end up taking the wrong loan. 
2. Study all your options and fix a comfortable loan tenure and payment amount. Your business will not make millions overnight. There would also be other factors that might affect your business cycle. Keep these things in mind before taking a business loan. 
3. There are many lenders today. Each of them has different terms and conditions. Analyze them and choose the one that’s best for you. Conducting a background check and asking other entrepreneurs about certain lenders is also advised. 
4. Calculate the interest rates levied on the loan amount. As an entrepreneur, you need to watch out for rising costs. The interest rates can affect your ability to comfortably pay back the loan amount. Check the annual percentage rate (APR) and make your decision accordingly. 
5. Organize all your documents before applying for a business loan. Lenders will conduct a background check and document verification before approving the loan. If you are just starting out, lenders might not immediately give you a business loan. You can ask one of your relatives with a good credit score to take out a personal loan on your behalf. Make sure you meet the lender’s eligibility criteria. 
6. Before applying, check your business loan eligibility. Rejection of a loan can negatively affect your credit score. 
7. Look out for government loan schemes, as they will help you avail of tax benefits. 

Conclusion:

Having capital and maintaining cash flow are essential to running a successful business. Business loans are widely available, and as an entrepreneur, you must make the best decision for yourself. To learn more about business loans for entrepreneurs in India, visit the Piramal Finance website.