WHAT TYPES OF BUSINESSES QUALIFY FOR SMALL BUSINESS LOANS?

In recent years, India has seen a tremendous increase in the number of small and medium-sized enterprises. These companies make a substantial contribution to the national economy. Many businesses around the country use small business loans to keep their operations running smoothly. Small company loans can be used for a variety of objectives, including fulfilling working capital requirements, acquiring machinery, marketing, recruiting personnel, and paying utility bills. Startups can apply for small business loans to help them with their financial needs.

What is a Small Business Loan?

Whether you're starting a new business or expanding an existing one, you'll almost certainly want money to achieve your goals. Many business owners look too small business loans for funding without giving up equity or participation in their firm. Small company loans allow entrepreneurs to get their businesses up and running while maintaining control over their operations.

The majority of small business loans for startups are made available through internet lenders, banks, and credit unions. Interest rates, fees, loan limitations, and periods vary according to the kind of loan, lender, and borrower. It's essential to understand how each loan works so you can apply for a small business loan and select the best option for your company. Given below are the types of small business loans that can help your firm.

• Term Loan

A classic term loan requires you to borrow a specified amount of money upfront and return it with interest over a set period of time. Term loans are available from a range of lenders, including banks and online lenders.

A term loan is one that must be repaid in regular instalments over a certain time period. The term loan is divided into two types: short-term and long-term loans. The payback period for these two categories spans from 12 months to ten years. Short-term loans are those with a tenure of less than a year, while long-term loans are those with a length of more than ten years.

• Working Capital Loan

Working capital loans are used by businesses to manage their day-to-day company needs, such as acquiring machinery/equipment, managing cash flow, purchasing raw materials, increasing inventory, paying salaries, and so on. Working capital loans are often short-term loans with payback terms of up to 12 months. This is also known as a collateral-free loan since the borrower is not obliged to provide any collateral or security to the bank. The interest rate is slightly higher than that of long-term loans or standard business loans. In this sort of loan, the bank establishes a lending limit for the firm, and the money can only be used for particular business goals.

• SBA Loans

These loans, which are made available by banks and other lenders, are guaranteed by the Small Business Administration. The length of the repayment period on an SBA loan is determined by how you intend to use the funds. They range from seven years for working capital to ten years for equipment acquisitions and twenty-five years for real estate purchases.

• Loan for Women

One of the most popular small business loans for women who want to start a business by themselves as some financial institutions have unique business lending programmes for women entrepreneurs. Even the Indian government has efforts in place to encourage women to start small to medium-sized enterprises. A customizable loan amount, a start-up loan, a reduction in standard interest rates, and a speedier application process are all advantages of specialist loans for women entrepreneurs.

• Invoice Financing

Invoice loan is another prominent sort of asset-based lending for firms. You leverage your outstanding invoices to obtain a cash advance from a lender using this form of a company loan. The outstanding bills serve as security for the advance. It is the best loan for small businesses.

A lender advances you a part of your total invoice amount, generally about 85- 90% and keeps the remaining percentage. You can utilize the advance to cover company expenditures while you and your clients wait for payment.

Overall, invoice financing is a wonderful alternative if you are experiencing cash flow issues as a result of charging several clients, each of whom pays at a different time. The advance can be used to cover salaries, rent, and other operating expenditures through this loan for the new small business.

Eligibility for Small Business Loan

Following are the eligibility criteria for a small business loan:

• The candidate should not be from the financial industry.

• When applying for a loan, you must be over the age of 21.

• The candidate can operate in any of the following industries: manufacturing, service, or trading.

• The candidate must be a member of one of the following groups:

  • Firms that form partnerships

  • One-person business

  • Individuals/professionals working for themselves

  • Limited liability corporations (LLCs)

• Grocery stores, vegetable sellers, and other small businesses are examples of microenterprises.

• Small and medium-sized enterprises (SMEs) include electronics stores, tailors, and so on.

Muthoot Finance makes business loans available to all of these companies. Muthoot Finance's business loans may be utilized for a variety of objectives, including business development, addressing holiday season spikes and working capital requirements, stock purchase, recruiting staff, and so on.