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Small Business Finance: Expert Insights from India’s Leading Lenders

Should you Apply for Small Business Finance????

It is important to understand that small and medium businesses constitute the backbone of a developing economy. They generate employment and boost the GDP of the country as well. This is the reason the Indian government has taken various initiatives to help the growth and development of small businesses. So, if you own a small business and are looking for funds to take it to new heights, it’s wise to apply for small business finance.

India is home to many reputed lending institutions that offer loans specially designed to meet the needs of small and medium businesses. They usually come with flexible tenure and low interest rates. Different lenders have varying eligibility criteria though, and so, you need to be aware of the same before applying. However, the basic eligibility criteria are as follow:

  • Self-employed, private, public and proprietorship firms are eligible to apply.
  • The business should be in existence for a minimum period of three years.
  • The business should be profitable as per industry norms.
  • You need to have a satisfactory credit score.

Different lenders may have additional criteria, including turnover and profit requirements. You can get information about the same online and then submit an application. The documentation required is as follows:

  • Profiles and KYC of partners and directors
  • 3 years of audited financial statements and projections
  • Company documents and registration certificates
  • ITR and bank statements

Why small business finance is important

In India, small businesses make up a large majority of the workforce. According to the Small Business Administration, small businesses create two out of three new jobs in India each year and employ half of all private sector workers.

Small businesses are important to the economy and to job growth, but they often have a difficult time accessing the financing they need to start or grow their business. That’s where small business finance comes in.

Small business finance is important because it provides access to capital that small businesses would not otherwise have. This financing can be used for a variety of purposes, including starting a new business, expanding an existing business, or hiring new employees.

Small business finance can come from a variety of sources, including banks, credit unions, venture capitalists, and government programs.

What are the options for small business finance in India?

Small business finance in India has come a long way in recent years. There are now a number of options available for small businesses to get the financing they need.

One option is to take out a loan from a bank. Banks have become more willing to lend to small businesses in recent years, and there are now a number of banks that offer loans specifically for small businesses.

Another option is to raise capital from investors. This can be done through venture capitalists or by selling equity in the company.

Finally, small businesses can also look into government grants and subsidies. The government has programs in place to help small businesses get the financing they need to grow and expand.

Small Business Finance

Why and when to take small business loans?

Corporate finance is an important part of every business. If you aspire to achieve organizational goals in a short period of time, you need to apply for a loan. Do not use the emergency funds or your working capital for this purpose. When you apply for a loan for your small business, you keep the cash flow intact. It helps with business operations too. You can use the funds for any business-related need as there are no restrictions on the end-use.

Read: How technology is helping business to take smart financial decisions?

How to choose the right loan?

Small business loans usually feature affordable interest rates and flexible repayment tenures. So, compare the interest rates offered by different lenders before you make the application. Choose a lender that has the lowest interest rate as it will reduce the amount of EMI payable.

You can use the online EMI calculator to get a quick estimate too. It is highly recommended to use the calculator as it will help you make the right borrowing decision. The calculator is free to use. You only need to provide the loan amount and tenure to get the estimate. If you need a longer tenure, you can ask the loan executives for the same.

Benefits of small business loans

When it comes to small business finance, Indian companies usually avail them to buy new inventory, new machinery, or hire more labor. The loan can be used for expansion or meeting short-term emergencies as well. This way, you won’t have to seek help from family members or friends or exhaust your credit card limit or dip into rainy-day savings.

The risks of small business finance

Small business finance can be a risky proposition for business owners. Without the necessary financial knowledge and experience, business owners can find themselves in over their heads and in debt to lenders. This can lead to high interest rates and fees, which can put the business at risk of failure.

There are a few things that business owners can do to mitigate the risks of small business finance. First, they should make sure that they have a clear understanding of their financial situation and what they can afford to borrow. Second, they should shop around for the best rates and terms from lenders. Finally, they should always remember that borrowing money is a risk and should only be done when it is absolutely necessary.

Do note

Prepare a repayment schedule to ensure timely payment of dues. If you have excess funds in hand, you can choose to prepay the loan. Regular and timely payment of EMIs will help build a strong credit score. If you already have a loan and are unable to make the EMI payments, you can opt for a moratorium. However, it is only applicable to the EMIs between March and May.

You will have to pay the interest on the amount as per the prevailing interest rate. Consider all options and make a well-informed decision. In the case of corporate finance, only opt for a moratorium if you are unable to pay the EMI and are facing a cash difficulty due to the current pandemic.