Small business loans refer to the immediate funding that organizations take to meet their short-term capital requirements. It is very much featured in the list of all medium and small-scale businesses which helps them to fulfill their operational activities. Whether you are a budding entrepreneur or trying to expand your business these loans are the ideal means to access the quick capital you need to run your business. These loans can be obtained through secured or unsecured manners, the first one involves providing a guarantee while the latter one does not require any such thing. Let us guide you through these loans.
Small business loans start from 50 thousand to 50 lacs. The repayment tenure varies according to the nature of the loan and the borrowed amount. The average interest rate for these loans will be decided by the type of loan, the lending partner, your qualifications as a borrower, and most importantly whether your loan comes with variable or fixed interest rates.
Variable and fixed business loans
The interest rate that appears inexpensive may not always be the one that suits your needs. You should not jump over a loan seeing the lowest and most attractive interest rate. With a variable-interest loan, the average loan amount will be higher. However, a fixed-rate loan will provide you with less money, but it will come with a lower annual interest rate. A variable interest rate will change over time, but the fixed interest will be the same throughout the duration of the loan. The interest rate increases with a variable loan, but you can avail the benefits of interest dropping during the tenure of the loan. A fixed loan will give you an annual interest rate benefit, but you will end up paying a much higher amount than you borrowed.
Small business loans are mostly unsecured
Mostly, small businesses opt for unsecured business loans as they want to avoid the risk of surrendering their assets as mortgages against the loan. From the borrower’s point of view, unsecured loans provide you with safety in terms of your assets. The unsecured business loan rates tend to be on the higher side because of the risks associated with unsecured loans. In such cases, the lender is always at risk as they have nothing to compensate the amount in case of any default payment by the borrower.
The eligibility of a small business loan is not much different from other loans
- The minimum age criteria of 21 years
- Indian citizenship with a minimum business experience of 3 years
- The business annual turnover report and the IT return details for the last 2/3 years
- Profitability in the balance sheet
When it comes to documents, the applicant must submit his address proof, identity proof, bank statements of 6 months, tax clearance certificate, and details of profits and losses in the balance sheet for 2 years, duly verified by a chartered accountant, proof of business in the form of trading license, proof of sole proprietorship deed or partnership deed, etc.
A small business loan is less hazardous
The advantage of small business loans is that they are easily available. A lot of such loans are in the offering nowadays. You can do a quick check online about the type of such loans you require and plan well ahead. These loans come with comfortable interest rates depending on your loan tenure, market condition, borrower’s profile, and overall financial scenario. Sometimes government also offers financial schemes to avail these loans at low-interest rates and this helps small businesses to make the repayment on time.
These loans come with a minimal processing fee and there are no hidden charges involved. Moreover, one can choose convenient EMI options whereby you can increase or decrease the EMI amount. You can also opt for the bullet payment option to repay the entire amount on maturity.
These loans help increase the cash flow of small businesses and allow them to augment their revenue. Since there is no restriction on how these funds will be invested, businesses can spend them as per their requirements. Furthermore, you can enjoy tax deductions on these loans at the interest rate, specified under the Income Tax act 1961. The application and approval process is smooth with small business loans as mostly they are done online. Hence it is disbursed to the borrower’s account without any delay. The only thing you need to be careful in choosing the right type of loan that will optimize your business.