What does a successful business require? First and foremost a good idea, then the right team to make that idea into reality. The one important thing that people forget most of the time is the capital that helps the team in ensuring that their idea is competitive and scalable. To get this business loan there are various schemes launched by the government.
However, before you ppt for a business loan, it is important to know the types of business loan and which one is better for you.
What is Business Loan?
A business loan is a credit tool specifically intended for business purposes. As with all loans, it involves the creation of a debt, which will be repaid with added interest.
Advantages of a business loan?
The various advantages of a business loan are:
- Cash Inflow to grow your business
While there are various ways of getting an inflow of cash to grow your business-like investment, IPO and many more. Getting a business loan is one the easiest and most obvious way to gain major cash flow, without compromising your stake in the business. Whether your business is at the star5 stage of being launched, or you are looking to expand and grow your business, a loan takes care of it all.
2. Maintain control of your business
Unlike Equity, where you distribute your business shared, getting a business loan from banks ensures your control over the business. The bank does not get involved in your work, and you retain complete control over operations and management.
3. Interest is tax-deductible
A business loan not only provides you with the cash flow but also offers tax benefits. The interest charged on business loans is tax-deductible. It is generally for fixed-rate loans, where the interest rate throughout the loan tenure remains constant. The benefit allows individuals to plan their budget and loan repayment wisely.
4. Government schemes
To promote the entrepreneurial attitude amongst the youth, the Indian government from time to time launches various schemes for businesses to take a loan. It not only helps the country in creating more jobs but acts as a blessing for business owners to grow their company.
Types of business loans?
There are mainly two kinds of business loans:
- Short term Business loans: The business loans which have a repayment tenure ranging between one to three years with flexible EMI options is known as short term business loan.
- Long term Business loans: A business loan with a repayment tenure ranging between five to 12 years is known as a long term business loan.
Short term Business loan
Various entrepreneurs opt for short term business loans as it comes with a lot of perks.
Advantages of short term Business Loan
- They usually provide quicker access to funds, sometimes in only 24 hours.
- Slightly more relaxed eligibility conditions
- Minimal Paperwork
- The application process for the loan is simple and quick
- Quicker disbursal – typically within days
Disadvantages of Short term business loan
- The interest rate is higher
- Frequent payments are required
- Potential for significant debt
Long term Business loan
Various entrepreneurs opt for long term business loans as it comes with a lot of perks.
Advantages of short-term Business Loan
- The interest rate is lower
- The money can be invested in the business for a longer duration.
- Provides easy payment options.
Disadvantages of Short-term business loan
- They usually have a detailed application process and may take a week or two.
- Stricter eligibility conditions
- Heavy Paperwork
- The application process for the loan is very comprehensive and detailed
- Disbursal depends on the lender – may take a week or two.
Which loan option is Better for You?
Both the short as well as long term financing options for business have their set of advantages and disadvantages. The final choice however will depend on which business loan term is aligned with your business strategy. One of the ways to make the right decision is to ask yourself some questions.
- Why do you need the money?
- How soon do you require the money?
- By when can you repay the money?
- Does your investment come with long term or short-term gain?
To make a better decision regarding which business loan to opt for you can also use the business loan EMI calculator. With the help of this tool, you can calculate your monthly financial expenses that will go in repaying the loan amount, at a particular interest rate. Based on this you can either fix your tenure or negotiate with the lender for a lower interest rate-allowing you to chalk out your finances favourably.
Business loans are a powerful tool which helps both small and big business with funding, launching and growing their business. If you too are a small business owner and are looking for secure financing to maintain business operations, expand locations, invest in new equipment, or hire more employees. A business loan helps you achieve all this. Make sure that you are well aware of your business plans and accordingly opt for short term or long term business loans.