Being a business owner, you are familiar with the fact that only money can create money. However, financing is a complex subject to be understood. Let’s discuss a few ways of keeping the flow of available means of the finance positive. There are various methods to meet our financial needs and then keep the flow of the said resource positive.
Usually, the methods which are thought of while planning our business finance are Bank Loans, Government Loans & Grants, Investment options, etc.
The most commonly adopted method to meet the financial needs of a business is a business loan. However, as common as it may sound, there are certain criteria related to your creditworthiness which you are supposed to meet, your annual revenue and the lived life span of your business.
- Term loans: Several banks provide business loans that differ by the repayment period. Long- and short-term loans. The amount given to you in these loans is easily available and is then paid back within the scheduled time period. The payment is sent to the bank uniformly, and the said payment comprises of the interest that is charged by the bank on the principal amount.
- Line of credit: It is more of a credit card system than a loan. The amount is given to you, and you can withdraw it whenever you require it. The interest is charged only on the amount you withdraw, and once you repay the amount you withdrew, your line of credit is ‘refilled’ back to its original amount.
- Equipment loans: These are the business loans that carry a characteristic of term loans, and they cover 80-100% of the cost of your new machinery and equipment.
Pros and cons of bank loans:
Bank loans are considered the hardest form of financing to be availed or to qualify for. The majority of the small business owners say 80%, is denied a business loan. The annual APR (annual percentage rate) for a small business loan, if taken from a major national bank varies from 2.24% to 4.77%. The rates from other banks are only slightly higher, at 2.86% to 5.43%. The latter banks are easy to work with because they tend to be a bit easier and more personable. If you’ve ever availed a business loan, you know this is the cheapest financing available to you.
Lastly, equipment business loans are really easy to be availed. The sole reason being the said equipment also acts as collateral security for your business loan and banks pass the loan if you’re providing them some security, i.e., collateral.
Even though bank loans are the cheapest and the easiest way of financing, it is still not an option for 80% of the small business owners because of the strict requirements the banks have set for lending. For such situations, the government offers programs that grant financial support to selected small businesses.
These programs are conducted by the government where these small businesses are provided business loans by the banks, and other private/public lending organizations and the government guarantees the loans which makes it a bit less risky from the perspective of the banks.
As of now, the government does not offer/provide any grants for business purposes like commencing a business, paying off the debts, or covering up the operational expenses. However, the exception lies in the field of scientific and medical research.
Grants refer to free money; it is tough to find them due to the downright number of competitors. Again, the strict rules regarding the use of grant money make it a source of financing, which is hard to obtain. But then again, if obtained, grants are a great source of funding. If you are interested in pursuing this path of obtaining fund, take a look at:
- Small business grants
- Grants for veteran business
- Small business associations which offer many grants
- Small-business grants: where to find free money.
GOVERNMENT LOAN SCHEMES FOR SMALL BUSINESSES IN INDIA
India is one of the topmost growing markets in the world. And contributing to its growth are small and medium enterprises or businesses around the country. They add to about 40% of total GDP and is an essential source of employment for the country’s population too.
To boost these areas, the government has introduced new business loan schemes and improved the existing ones.
Here are a few of them
MSME business loans in 59 minutes
- A scheme announced in September 2018.
- Loans are given for financial guidance and growth of MSME.
- One can get assistance up to 1 crore no matter new or old business.
- The loan approval is granted within 59 minutes, but the actual process takes 8-12 days.
- The interest rate depends on your credit score and business nature.
- One need GST verifications. Income tax verifications, bank account statements of the last 6 months, documents related to ownership, and KYC details.
- It stands for Micro-Units Development and Refinance Agency.
- It provides loans to micro-businesses units.
- The aim is ‘funding the unfunded.’
- Loans provided at low-cost credits keeping in mind the nature of the business.
- Generally provided to business working in manufacturing, trading, and services.