Finding the correct fund source for your small business can be challenging unless you know where you must look. For entrepreneurs running businesses, there are two ways to avail business financing, i.e., either through government schemes or by applying for a business loan with private players.
A few significant government business loan schemes include Pradhan Mantri Mundra Yojana, MSME business loan for start-ups and SIDBI Make in India soft loan. Private players, on the other hand, provide a variety of small business loans where each option has its specific procedure and set of conditions.
Check out the business loan options through private players for small businesses:
This is one of the most common kinds of business financing. The loan can either be unsecured or secured in nature. The loan proceeds available are based on your company’s credit history. Repayment tenure may range anywhere from 1 to 5 years in case of an unsecured option or up to 15 to 20 years in case of a secured option. Note that this loan is availed for meeting a particular purpose, usually linked with your capital expenditure. The lender processes the loan to proceed in lumpsum.
Working capital loan
working capital loan is a kind of loan taken up for overcoming cash shortages to operate your day-to-day business chores. This generates a balance in the cash flow required to run your business. It is also helpful to deal with monetary shortfalls during the off-season or mitigate demand during the peak season. Many eligible loan seekers are wholesalers, manufacturers, traders, or retailers.
Invoice financing is also called invoice discounting. This is a kind of financing, particularly for small businesses that faces time lags between the raising of invoices and availing of payments from clients. The lenders offer funds against the amount that is raised in the invoice. The lender usually finances up to 80 percent of the invoice amount. Once your business gets the payment from the client, you can clear the debt according to the decided repayment tenure and rate of interest.
An overdraft option is offered against the collateral or securities, particularly your fixed deposit. The lender reviews your credit history, business cash flow, repayment history, etc., before approving a specific overdraft limit. You can withdraw the required amount and pay interest on just the used amount. Funds can be used as long as the interest and principal components are repaid according to the decided term.
Business credit card
Though a business credit card is not the first choice you may choose to fund your requirements, it is still suitable for short-term and instant funding. If you require instant cash and at the same time want to avail yourself of rewards, then a credit card may be a good option. Many creditors tend to attract businesses by offering benefits on their credit cards like insurance cover, introductory cashback on transactions, etc. However, the finance charges are very high than the traditional business loans if you miss paying the due on a credit card by the due date.
Choosing the business funding option is recommended depending on your business profile and need. Thus, before zeroing on any business loan option, ensure to review each type to opt for the one per your requirements. The above information will assist you in deciding the kind of funding that best matches your venture.