What are the Benefits of Business Loans?

Thinking of starting your own business? Congratulations! Establishing a business can be a meaningful, challenging way to take one's ideas to fruition. But are your funds sorted?

Funds are the bloodline of any business, whether it be a startup, a mid-size establishment or even a large-scale proprietorship.

And this is why identifying the right financing solution for a business is one of the most important decisions an entrepreneur will take.

It’s true that not every creditor is ready to invest in an unknown business. But other options do exist. Irrespective of the stage of your business, certain loans can be taken up at any point of time during your business journey.

Still, confused about how business loans can contribute to upscale your newly started venture? Let’s walk through the advantages of small business loans.

1. Handy and easy to access

Small business loans are relatively easy to access, which makes them an option favoured by startup founders. Most business owners don’t have the time or patience to see the profits coming. Or it may be the case that the business idea may be great, but profits through sales are still some distance away. This is where small business loans turn out to be a handy choice: they can function as a payday and keep the business going until the next payment cycle.

Another advantage: going the investor route may mean getting into a complicated, time-consuming process. Hence, small business loans are a simple, quick alternative entrepreneur can opt for.

2. Attractive interest rates

Small business loans are available at attractive and competitive interest rates. Any business must look to save money, and, of course, lower interest rates save businesses money. The interest paid on these loans is also tax-deductible. To get your business up and running, a small business loan lends a helping hand, thereby saving you from unnecessary expenses.

3. Keep risk at bay

The best part about opting for business loans is that the risks involved are negligible to zero. Even if your startup does not perform as expected, you don’t have to pay back the loan. This significantly reduces the risk involved. Your business is cleared, and all the required assets need to be sold out to pay back this money.

4. Increased profits

Since there is no involvement of a third party like an investor, the returns acquired over time remain fixed. Business owners personally prefer business loans because they wish to push their direction towards the maximum profit. With business loans, the amount you pay to the bank remains constant, no matter what stage your business is in. With an investor paying for you, the profits obtained from returns gets divided.

Businesses that rely on equity need to give a certain percentage of profits to shareholders. In contrast, with business loans, they only need to pay principal and interest amount on the loan. This way, businesses can see increased profits with small business loans.

Why are business loans a good option for startups?

Business loans for startups are a good choice to fulfil varied business requirements such as business expansion, vendor financing, dealer payments, etc. Because many small business loans are offered without any requirement for security or collateral, they can be easier to apply for compared to other methods. The process is intuitive and straightforward, and can often be done online with some basic documents.

Another important benefit of a business loan is that if there is a default, the enterprise runs a lower risk of losing its assets to settle dues.

For startups, approaching a bank may be a better option than seeking investment from venture capital. Unlike with venture capital, banks don’t seek equity dilution. Above all, banks also decide loans based on the individual requirements and circumstances of a business.

Features of a business loan

In a business loan, the interest remains fixed throughout. Depending on the profile, a lender may demand a rate of interest, which varies throughout the loan tenure. Typically, rates lie between 11%- 19%.

The borrower’s credit history is also taken into consideration. Banks offer loans of up to INR 50 lakhs. A good credit score will help speedier processing of a loan application. Applications with a poorer credit score attract higher interest rates.

Business loans can also be availed with bad credit history. A borrower can take advantage of applications mentioning the type of the business, assets related to the company, revenue status and so on. And when the assets are valuable, banks will not refrain from processing them.

Typical repayment periods are somewhere between 1 to 5 years, depending on the borrower's ability to repay.

With minimal paperwork, applying for business loans becomes quite simple. There are some financial institutions that require only KYC documents to process loan applications. This, in turn, makes the entire process easier.

How to apply for a business loan?

The process is entirely online. You can visit the institution's website, fill in the prescribed details, submit the required documents and then apply for the business loan. Another way is to visit the nearest lender’s office and submit the application and documents manually.

A startup loan can also be availed by requesting assistance via the customer support of the bank or lending institution.

Documents required for a business loan

To get started, all you need are some basic documents. Here are the documents required:

1. For KYC, you’ll need an Aadhaar Card, Driving License, Passport or PAN Card.
2. Documents required for address proof include electricity bill, telephone bill, passport, lease agreement, etc.
3. ITR filed for at least the last year.
4. Bank statements for the past 6 months.
5. Audited profit-loss statements for the past 2 years.
6. For ownership, you’ll require Registration Document, Proprietorship Agreement, Certificate of Commencement, etc.

In conclusion

Any entrepreneur aiming to start their own business needs sufficient funds for various business expenses such as equipment, recruitment of human resources, rent, billing, and several other types of expenses.  

If cash shortages prevent you from expanding your business, small business loans can offer a solution. With small business loans, you will have the required funds right at your disposal without allowing you to get into tedious complications. Business loans, being professionally handled by banks or lending institutions, offer competitive interest rates and flexible repayment schedules to help you supercharge your new venture.

Also read:

1) What is a business loan? How to apply for a business loan?
2) Home Loan: Steps to apply, Best Interest Rates on Home Loans & more
3) What is Business Loan? A Complete Guide.
4) How To Get Small Business Loan From Government?