A business loan is that financial product that is devised to help entrepreneurs and businessmen acquire funds for a wide variety of business purposes. The loans are issued by banks, non-banking financial companies, or any other financial institution. It is used by the businessman to start a new business, expand operations, or manage day-to-day expenses.
This article will give all the details about what a business loan is, its benefits, its various types, and what will propel your business. The concept of loans specially tailored for professional men, such as a chartered accountant loan, is also mentioned in the article, with factors that must be considered before applying.
What Is a Business Loan?
Money withdrawn from a credit bank to satisfy specific business requirements is known as a business loan. This amount is repayable with an addition of interest in an amount and period agreed upon before borrowing. Business loans can be secured or unsecured.
- Secured Business Loans: These are secured by keeping property, machinery, or an inventory of a business as guarantees for loans. Generally, these bear lower rates of interest as compared with the others.
- Unsecured Business Loans: The financier does not require any type of collateral and offers the same at higher rates of interest because the risk involved towards the financier is higher.
All the loan amount, tenure, and rate of interest are decided according to certain parameters like the credit history of the borrower, business performance, and the policy followed by the financier.
Advantages of a Business Loan
1. Liquidity Access
A business loan can be acquired earliest in case of a need to meet the growth opportunities or meet the running costs, or for fulfillment of any urgent need.
2. Flexibility in Application
Business loans can be taken to meet all the above requirements:
- Expansion
- Stocks
- Upgradation of technology
- Recruitment of people
- Advertisement and promotion
3. Smooth Liquidity
The business loan does not disrupt the cash flow. It does not affect the regular working of the business.
4. Low Interest Rate
Most lenders will provide low interest rates to the customers. This benefits the customers with good credit scores or businesses with a track record of performance.
5. Creating a Credit History
Paying your business loan on time will improve your credit score making it easy to raise more funds in the future.
Types of Business Loans
Business loans come in different types to cater to different needs. Some of them are listed below;
1. Term Loans
It is a term loan normally having a fixed tenure spanning between 1 to 5 years. A full amount is provided to the borrower, and the same has to be repaid as installments. Term loans are most appropriate for any long-term investment such as machinery purchase or facility upgradation.
2. Working Capital Loans
Working capital loans help the business to finance its current running costs, be it the payments to suppliers, rents, or even salaries. Working capital loans are generally short term with an easy repayment period.
3. Equipment Financing
Equipment financing is utilized only to raise funds to buy machinery, tools, or equipment. The loan is secured by the machinery, tools, or equipment.
4. Business Line of Credit
A business line of credit is a line of credit that enables a business to borrow up to an amount as and when required. Interest is charged only on the amount used. This is very useful in managing irregular cash flows.
5. Invoice Financing
This loan frees up cash from non-paid invoices. The amount advanced is against the invoice; it gets paid on settlement of the invoice.
6. Professional Loans
Professional loans would typically include a loan for a chartered accountant or a doctor. It would look to fulfill some specific business needs, like opening up a new office or buying some sort of software.
How Business Loan Promotes Advancing Your Business Forward
1. Facilitates Growth
Opening new branches, exploring other markets, or ramping up the production capacity are a few examples of expansion that the loan for business allows. Expansion widens revenue and market size.
2. Assisting Technology Upgradation
To make a business efficient or competitive, technology up-gradation through automation tools and software is required. For this, business loans may serve.
3. Gaining Opportunities
You can take some of the crisis opportunities like buying orders in bulk quantities due to low price or tenders on high deals when funds are available.
4. Motivates Marketing
The marketers should always be aided by the funds, hence now that these are in business loans could fund adverts and promotions both social media, brand, as well as building as these can boost sales apart from acquiring the customers.
5. End Crisis
Economic down seasons or unexpected challenges will stretch your finances. You can have the finances to go through such seasons without letting your operations fall with a business loan.
Things to Consider Before You Apply for a Business Loan
- Amount
You must determine the loan amount for your business. A surplus loan will incur higher interest rates while insufficient loans may not serve your purposes.
- Interest Rates
Compare interest rates from multiple lenders. Lower rates reduce the overall cost of borrowing. Check whether the rates are fixed or floating.
- Loan Tenure
Select a tenure that balances affordable EMIs with minimal interest outgo. The shorter the tenures are, the higher will be the EMIs but the lower the total interest outgo.
- Eligibility Criteria
Observe the lender’s eligibility criteria for their loans which include:
- Minimum business turnover
- Credit score requirements
- Years of operation for a business
- Paperwork to be done
- Collateral Requirements
For secured loans make sure you have collateral relevant enough to be taken in those circumstances. Know the consequences and losses if defaulted.
- Processing Charges and Other Charges
In uncharged fees, there are always processing fees, or prepayment charges, or a penalty in case of a late pay. This may escalate the whole cost of the loan by several dollars.
Role of Loan for Chartered Accountant
A business loan for a chartered accountant is made to meet CA requirements. It serves for professional services, such as:
- Practice setting up or expanding
- Buying software/office equipment
- Managing working capitals
Loans for that purpose are customized with flexible repayment, lower interest rates, and fewer documents.
How to Apply for Business Loan
Step 1: Estimate Your Needs
You should precisely know why you need a business loan and how much you need.
Step 2: Identify Lenders
Compare the interest rates, terms of loans, and their eligibility criteria.
Step 3: Evaluate Eligibility
Compare your minimum eligibility with the lender’s criteria like minimum turnover, credit score, and business vintage.
Step 4: Preparing Documents
Prepare the following documents:
Aadhaar or PAN
- Registration of the business
- Financial Statements including IT Returns and bank statements
- Any document that shows the continuance of the business.
Step 5: Application
Apply online or through the branch of the lender. Fill in all information correctly so that no kind of delay will occur.
Step 6: Loan Disbursal
Loan is disbursed in the account after approval by the lender.
Conclusion
A business loan is one of the most important facilities for entrepreneurs, trying to make their businesses grow. Whether this is expansion, technology, or working capital, a business loan gives one flexibility and, of course, the financial impetus that one needs to successfully achieve set goals.
This will be of great value in choosing the right decision and letting your business take the right step on the way to continued growth. Learn the various types of loans, benefits, and the factors to consider and utilize the right resources such as professional loans, for instance, a chartered accountant loan, to meet specified needs and unlock new possibilities.
