The basic underlying for any business is the constant need for funds, be it either for expansion or for sustaining its market position. If there is a shortage of funds, it can prove to be fatal for the entire organisation. The nature of business is such that cash flows are cyclical. There is a significant time gap in each business from its initial investment to receiving returns. Moreover, if your business is a start-up venture, there is even more and frequent requirement of funds.
For every business owner, it is necessary to keep continually pumping funds. How does one achieve this? A business loan is an excellent way where such need for funds can be fulfilled.
You can use these business loan to fulfil the working capital gaps or satisfy the periodic capital needs as time passes. It is not easy to meet all such demands for the owners each time, and that is when availing loan for business can be a solution without hindering growth.
Let us look at the different ways of business finance depending on the purpose for which they are obtained-
Acquisition of assets which are for long term use like building, plant or machinery, land, etc. requires huge amounts of capital. At such times, availing a term loan can be best suited. Infrastructure creation, renovation, purchase of heavy machinery or those that are crucial to operating a business are vital can be some of the areas where a term loan can be used.
There is a definite tenure to the repayment of term loans, either monthly or quarterly basis. The interest too may be floating or fixed depending on the terms of the agreement. Generally, the maximum tenure for an unsecured loan is three years, whereas fifteen years in case of secured one. The quantum of the loan may depend on your eligibility for it.
As the name suggests, demand loan is the one which can be recalled by the lender at any given time. The repayment of such loan will have to take place as early as possible depending on the terms of the agreement (say within 1-7 days).
Loan Against Security
Each business may have some or other form of investments. Whenever a need arises, instead of liquidating those investments, you can avail a loan against those investments which can be in the nature of stocks, mutual funds, insurance policies, bonds and the like. Funds can be raised by pledging the securities for any required purpose. While it may seem like a lucrative option, you must keep in mind only those securities can be pledged that are approved by the financial institution.
Overdraft Facility And Cash Credit Facility
Overdraft is a facility provided by the lender that allows you to withdraw funds even more than your account balance up to a specified limit. Such an excess amount over and above your account balance is pre-decided depending on the assets offered as security. You are charged interest only for the amount utilised and for that particular duration only.
A cash credit facility can be availed against pledged business assets of inventory and receivables. The quantum which you can withdraw is based on the drawing power as calculated by reducing a margin over the pledged assets. Banks renew the tenure for such a loan facility every 12 months.
Apart from the above, there is a facility for a letter of credit or bank guarantee. You can contact your bank to know more about it. One can apply for loans for small business either online or visit in person your financial institution. Make sure you get the best facility to fulfil your financial needs depending on your requirements.