Instant small Business Loans come as a relief to entrepreneurs looking for money to run or expand their businesses. Most financial institutions provide Business Loans on convenient terms, making them suitable for every business person seeking urgent funds to grow or sustain their business.
However, as every coin has two sides, Business Loans can be beneficial and tricky, when not taken mindfully. It’s important that you constantly evaluate your repayment capability and business prospects before availing of a loan.
The expansion period of a new business after the initial 3-4 years might be pretty stressful, and generating revenue might be challenging. However, once you avail of Business Loan, you must repay the principal and interest (read EMI) every month, irrespective of your earnings.
So, it must be clear now that applying for a small Business Loan needs meticulous planning. This article elaborates on the top advantages and disadvantages of Business Loans in 2022 to help you make an informed decision.
The Top Advantages of Business Loans in 2022
A Convenient and Reliable Funding Source
The most challenging part of expanding a business is to add working capital or the amount you need to make your business more robust while in operation.
You may need the capital to augment the inventory, purchase equipment, and land, or manage payroll. You can also spend the amount on additionally hiring human resources, sponsor marketing costs, or investing in essential technology.
While some businesses are capital intensive, others do not need too much capital. So analyze your business needs well before applying for a Business Loan. Usually, any loan amount below INR 20 lakh is considered a small Business Loan. Any amount above INR 20 lakh but below INR 50 lakh is considered a medium Business Loan.
If getting capital to expand your business is a concern, Business Loans provide you with ample money to grow your business.
Keep Your Business In Motion
Some business persons rely on investor financing to get urgent funds. Investor financing also means transferring a part of your company ownership to the investors offering money. You have to assign equity shares, which they will hold until you pay them back.
This reduces your control over your company, and you have less authority over the partnerships you want to consider.
Business Loans offer a viable alternative to business persons looking for funds without leavin control of the company or their shares. Since small Business Loans are collateral free, you can continue managing and controlling your business as you currently do.
Also, since your business is not pledged, you can select the investors you want to partner with. You can build strategic tie-ups rather than succumb to the pressures of investors.
So, Business Loans eliminate the need to depend on investors who want a controlling stake in your company. You may conveniently apply for a Business Loan without pledging any asset and repay to improve your credit score.
Better Control Over Personal Finances
Running a business exposes you to various risks, and protecting your personal assets, such as savings, gold or silver ornaments or home equit is crucial.
A small Business Loan can help you separate your personal and business finances. You may open a current account and quote it when applying for a Business Loan. This will not only secure your finances but also help in tax filing.
Hence, a small Business Loan can aid financial management when you maintain different personal savings accounts and business current accounts. Keeping these separate saves you from unnecessary confusion and helps better control both personal and professional finances.
Create a Robust Credit Profile
The further you proceed in your business, the more money you need to manage your inventory, grow operations, or carry out marketing. A small Business Loan and timely repayments can help boost your credit profile and claim discounted rates on new loans.
A strong credit rating is a solid indicator of the reliability and credibility of a borrower since it reduces the loan provider’s investment risk. If your credit score is low, securing collateral-free credit, such as a small Business Loan, might be very challenging.
A wise way to improve your credit score is by applying for a low-amount small Business Loan first and repaying it to be eligible for a bigger loan in the near future.
Simple Eligibility Criteria
Since Business Loans are collateral-free loans, loan providers exercise caution when approving these loans. However, with new age FinTech businesses like Clix Capital, this is no longer the case.
The minimum eligibility criteria for Business Loans is based on parameters like revenue, credit history, financial track record, or business longevity proof. Not meeting the required eligibility criteria may prompt the loan provider to reject a small Business Loan application or delay its approval.
However, if you want to increase your Business Loan eligibility, you can make a huge down payment or prove that your income is high enough to care for the loan EMIs. Alternatively, you may approach NBFCs like Clix Capital to get Business Loans on no-frills eligibility parameters and easy terms.
The Top Disadvantages of Business Loans in 2022
Reduce the Cash in Hand
When the ideal approach is not followed for taking Small Business Loans, they can become a liability. So, make sure to include the EMI in your monthly budget before filing the loan application.
Moreover, non-repayment of Business Loan dues can degrade your business credit profile. The loan obligations may restrict your cash flow, and you may face a cash shortage to operate or expand your business.
Hence, before applying for a Business Loan, you must evaluate the business plan and review fixed expenses like rent, utilities and inventory. Proper planning can minimize the chances of loan default, and you can maintain a healthy credit score and grow your business.
Processing Fee Might be High
All loan providers charge a processing fee to evaluate and approve the loan. This fee is often non-refundable, meaning if your loan application gets delayed or rejected, you may not get the processing fee back.
It is wise to inquire about the rules governing the processing fee before applying for a small Business Loan. This way, you can fulfill your capital requirements sensibly and eliminate losses.
Pursuing a small Business Loan has both advantages and disadvantages. While the total number of advantages exceeds the disadvantages, the disadvantages may reduce the actual benefits of a Business Loan.
Approach the best digital loan provider offering loan amounts of up to INR 50 lakh at attractive business loan interest rates. Ensure the tenure is long enough to get ample time for repayment.