Every business, irrespective of its size, needs money to run its operations, and the best ways to source it include debt, capital, and venture revenue. Sometimes, sales cannot generate sufficient cash flow to sustain regular expenses like wages, raw materials, and overheads. Moreover, raising capital is something other than something a company can do regularly, especially for owners who don’t want to inject equity. That leaves the firm owners with the only funding option, which is a Business Loan.
While big companies have numerous ways to raise debt, such as borrowing from overseas lenders or issuing non-convertible debentures, small enterprises find SME loans the best funding option. It is the money a firm borrows from a bank or NBFC for a specific period and pays back at a predetermined interest rate. Almost all business entities borrow SME loans to purchase equipment, pay wages, invest in new projects, spend on marketing, and expand the business. These loans may be secured or unsecured, and many lending institutions offer them at attractive business loan interest rates. Those with a solid credit score can apply for an SME loan in a hassle-free and simple way, depending on where they borrow from.
Various Resources to Borrow SME Loans
Let’s look at the best resources to borrow Business Loans.
NBFCs or Non-Banking Finance Companies are among the easiest resources for SME loans due to their easy eligibility conditions, 100% online application procedures, no collateral requirement, and no end-use restrictions. Overall, they provide highly convenient methods for obtaining Small Business Loans with minimal documentation and minimal documentation.
Banks have been the most traditional source of Business Loans for decades. However, the process of obtaining a small Business Loan from a bank is cumbersome and slow due to several formalities involved. They must follow RBI norms before sanctioning loans, which include high scrutiny of loan applications. Besides, they have stringent minimum turnover and vintage requirements, making bank loans out of reach for many small and medium-sized businesses.
Several financial institutions lend money to businesses in specific industries, such as tourism, power, infrastructure, etc. However, these government-supported institutions have stringent eligibility conditions, making them unsuitable for SME loans.
The Indian government has launched several funding schemes for small business enterprises, especially to encourage entrepreneurship after the Covid-19 pandemic. Some of these schemes also come with credit guarantees, under which the government repays the loan if the borrower defaults. Under the CGS scheme, the government repays up to Rs.2 Crore loans for MSMEs. Potential borrowers can apply for loans under this scheme from private, regional rural, or state-owned banks or NBFCs. Other SME-supporting government schemes include the following:
- Market Promotion & Development Scheme
- Pradhan Mantri Mudra Yojana (PMMY)
- MSME Business Loans in 59 Minutes
- Stand-Up India loan scheme
- Bank Credit Facilitation Scheme
- Growth Capital and Equity Assistance Scheme
Borrowers must research and find eligibility conditions for these schemes to avail of their benefits.
Also known as MFIs, these are typically meant to bridge the gap between borrowers and finance providers in rural areas. Several villages and regions in India come under the category of underserved banking areas, where MFIs help by providing loans to small business owners in the area. However, these loans are very small in size and have stricter repayment terms.
Choosing the Best Resource for Small Business Loans
After understanding the pros and cons of various business funding options, borrowing a Business Loan from an NBFC seems to be the best alternative. Let’s know more about it in detail.
Online vs Offline Loan Applications:
Most reputable NBFCs keep up with the latest trends and technologies to streamline the loan procedure for borrowers. While most other options require physical branch visits and hefty paperwork, these are a few benefits of applying for a small Business Loan through an
- 24/7 loan accessibility
- Easy eligibility requirements
- Minimal documentation (paperless)
- No physical branch visits
- Loan application anytime, anywhere
- Fast approvals and disbursals due to minimal formalities involved
Features of NBFC Business Loans:
Business Loans from NBFCs are feature-rich, making business finance easily accessible and manageable for borrowers. Some of their salient features include the following:
- No collateral requirement
- Freedom to use the loan amount for any purpose
- No equity sharing
- No profit sharing
- Flexible repayment terms of up to 36 months
- High loan amounts of up to Rs. 25 Lakh
- Competitive interest rates
- Easy EMIs according to the borrower’s affordability
- Tax benefits under different sections of the Income Tax Act, 1961
- Regular EMI repayments help build credit history
Types of Business Loans Available at NBFCs
NBFCs offer different types of Business Loans that borrowers can select according to their loan requirements.
1. Term Loan:
Business owners borrow term loans to fund their specific needs, like capital expenses. These are short repayment terms, and the NBFC determines the loan amount according to the applicant’s business vintage, annual turnover, and credit history.
2. Working Capital Loan:
A working capital loan is a lucrative funding choice for entrepreneurs having trouble managing their operational expenses and inventories.
3. Equipment Financing:
Equipment financing is ideal for small businesses looking to purchase, install, or upgrade their business equipment or machinery.
4. Line of Credit:
It is a revolving credit option that allows entrepreneurs to access funds whenever required. It has a predetermined loan amount that borrowers do not need to borrow at once. They can withdraw the amount as and when needed and pay interest on the withdrawn amount only.
Every business has different requirements. Therefore, the final decision regarding choosing a funding option is crucial. Draw a business plan, analyse the terms and conditions, and apply for the best option that fulfils the current requirements. Opt for an NBFC with a quick and easy application process with minimal documentation needs. While numerous NBFCs provide Business Loans for various purposes, look for a Instant Business Loan plan with reasonable interest rates, flexible repayment terms, and easy loan processing for easy sanction and EMI management.