Business need funds for the day to day expenses, to increase the working capital, buy new assets and also for the expansion. Business Loan is funded to an existing running business to cover any unexpected expenses. The new income gained helps the business to pay the regular payments to be made.
Banking sector is one of the best and trustworthy option to avail the funds for the business. The borrowed money has to be paid in an agreed length of time. The interest rates can be floating or fixed depending on the funding situation or the agreed terms and conditions. During the repayment of the money borrowed certain considerations has to be followed that decide the interest to be paid:
The loan amount can differ from company to company as well as lender to lender. Like all other loan sources, business loan comes with lots of advantages:
Being a part of our day to day life Banks becomes an important part of our life. Being located everywhere they allow easy access and deposition of money through ATM’s at any point of time. A Bank/ NBFC offers a business loan as an unsecured loan.
Banks do not charge any percentage in the business profit or a share in the company. They also don’t have any influence on decision making too. Lenders lend only to get the money back with some more amount as an interest or partial loan payment installments.
Unlike overdrafts, Banks/ NBFC’s can not demand the immediate repayment. This means that the borrower can plan to repay the amount as per the sanctioned terms and conditions. Lenders offer different repayment options as per the borrower’s convenience. Lenders at times workout a repayment plan to overcome any financial difficulty while servicing the loan. Lenders also provide the flexibility to make one shot payment to repay the amount.
Lenders choose the term for the repayment. Borrowers get the flexibility from the lender to increase or lower the EMI depending on the profitability.
Borrowers can avail numerous types of loans according to the fund requirement. Banks/NBFC’s offer lucrative schemes to attract the borrowers. Lender’s real earnings are from the interest charged on the loans.
Being into competition Banks/NBFC’s provide loans on a lower rate of interest. Tenure, financial situation of the business, borrower’s credentials and the market situation are few of the factors that determine the interest rates. Lenders charge a nominal fee as a processing fee that makes it easier to borrow the money.
Borrowers enjoy a tax exemption for taking a loan from Banks/NBFC’s as the percentage of the profit earned is used to repay the loan.
A booming business may need an expansion. To make it happen one needs a cash in hand or a term loan. The up-front cost or change in overheads because of an addition to the present location or picking up and moving to a new location needs finance to prove it to be a big move.
Companies need funds to manage day to day expenses efficiently. Businesses during the expansion mode are able to utilize the borrowed money in different ways to move up in the value chain. Lenders do not specify the usage of the amount which means that the borrower can use the funds in a versatile manner to fulfill the needs of the business.
Even when the business is not making enough profit or we can say that the profit margin is low but the business is able to bear the day to day expenses regularly. This makes the business eligible for a business loan where the timely repayment of the EMI’s take a strong stand for the credit building. This ensures a large loan amount in future for the better future growth of the business.(to know more about Credit Building).
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