Whether you are starting or expanding a business, you will have a specific set of opportunities, risks, and challenges. The biggest difficulty you can face during the initial days of your business is gathering enough capital for the smooth running of business operations. In such cases, you will always find yourself searching for ways to fund your business requirements.
A business loan can help you cater to your business needs, such as purchasing new stocks, machinery, managing your inventory, paying for new staff, or meeting the working capital requirements. A business loan interest rate varies across lenders, and it generally depends on factors like the type of business, credit score, market trends, and the loan amount you’re applying for. Here are some of the ways to fund your business.
Here’s Ways To Fund Your Business:
- Term loans
It is one of the most popular loans in India, and there are different types of term loans – short-term loans, long-term loans, and mid-term loans. Each loan fulfills specific business requirements and requires specific business loan documents to get a business loan. The maximum loan tenure you can avail of in a short-term loan is three years, whereas you can get up to 15 years on a long-term loan.
The interest rate usually depends on the type of loan you choose and repayment tenure within which you can afford to repay the loan amount. Depending on your needs, you can choose to opt for a secured or unsecured loan. In secured loans, you will have to incur a lower interest compared with an unsecured loan. However, you will have to pledge collateral. It can be your property, business premises, land, or machinery.
Overdraft or temporary funding a credit facility provided your lender to overdraw from your current account. It means that you can withdraw funds from your current account more than what has been deposited. The interest rate depends on the amount you withdraw. For instance, if you withdraw within the limits of your agreement with your lender, you will be charged at an agreed rate.
You will also incur a higher interest rate if you withdraw more than the set limit. It is a better way to fund your business requirements as you can cover the overdraft with the next deposit. It is best suited for temporary funding.
- Loan against property (LAP)
A LAP loan is a secured business loan wherein you need to pledge your commercial or residential property as collateral. If you need quick funds, you can apply for a loan against property and get instant funding for your business requirements.
It is worth noting that the loan amount you get depends on the market value of your property being offered as collateral. The loan amount can range from 50% – 80%, depending on your bank, the condition of your property, and your repayment capacity.
- Unsecured business loan
As the name suggests, it is a business loan that requires no collateral or security to get fundings for your business. The loan amount can serve all your business needs, such as expansion, project financing, or equipment financing. Since it is an unsecured loan, you will need to maintain a good credit score to get a better interest rate. The business loan documents required are KYC documents and your income proof.
- A business line of credit
It is similar to your credit card, allowing you to borrow anytime as per your business needs without going through a lengthy business loan application process. When you apply for a business line of credit, your lender decides an upper limit of funds. It enables you to borrow any time from that approved limit.
The difference in a business line of credit is that the interest rate is charged on the amount used, not the total loan amount approved by your lender. It enables you to repay the loan amount in equated monthly installments. If you use the entire approved loan amount, you will be able to apply for new loans only when you repay the borrowed amount in full.
So, before finding a way to fund your business requirements, it would be wise to assess your business needs first. Choose a funding option that best serves your business. You should be able to secure a lower interest rate and flexible repayment tenure.