7 Loan Options For Small Businesses – Solve A Cash Flow Crisis
‘It’s easy to get a loan unless you need it’
Many times, the passion to pursue your goals, perseverance, enormous effort, time management is just isn’t enough to build your business – An ugly truth indeed. What is missing then ? Resources? Workspaces? No. It all boils down to the one universal commodity that all businesses need to thrive, even if they do not manage to make.
Funding is undeniably the #1 thought that comes to entrepreneurs when they embark on a business. You may begin a business solely for your interest or passion and money not being your ultimate goal. But to kick off, you need to tick off your funding resource. And even for well-established businesses, entrepreneurs cannot rule out the demand of a loan. Shoot the question of ‘What loan is best for me?’ rather than ‘ Which loan is best?’ before taking the plunge.
Here are 7 most common loan options that businesses are going behind :
#1 – Business Loans from PSU Banks
All nationalized banks offer loans to businesses based on the Financial Health of the business. Interest rates are affordable as well. The challenge is that these loans involve heavy paperwork, time consuming and are relationship based. Despite the challenges, it does have its own merit. A good relationship with a PSU bank can go a long way to help you with your business cash flows.
#2 – Loans from PSU Financing Corporations such as SIDBI, NSIC, NABARD
These institutions are specifically setup by the government to enable funding in the Micro, Small and Medium enterprises sector. They would also loan to someone who does not have a collateral to offer and hence most suitable to early businesses. The upside is that interest rates are affordable, approvals are comparatively faster but the downside is that funding options for non-conventional businesses are very lean.
#3 – Business Loans from Private Banks
Business Loans from private bank are attractive not because of their interest rates (which is marginally higher than the PSU banks) but because of the conveniences they bring along. Private banks typically take just 3-7 days to process the loan application. Loan eligibility could be little higher, doorstep service, generally considered a little more responsive & welcoming among others. Not easy to find a private bank fund un-conventional business or businesses without good Financial Health.
#4 – Business Loans from NBFC’s
NBFC Loans are the costliest of all because they tend to take higher risks. If you are not eligible for loans from PSU banks or private banks, check with an NBFC, they may help. With an NBFC your loan eligibility may be a little higher than its peers & hence the higher interest. Go to an NBFC only in a make or break situation & keep your financing to the minimum.
#5 – Bill Discounting or Invoice Financing
This is a working capital loan based on the Sales or Invoicing.. If you have enterprises as your customers / buyers, you can avail this facility from a PSU, private bank or even PSU financing corporations. Bill discounting means that you get paid immediately for your invoice (hence do not have to wait for the credit period of 60 or 90 days). This typically works as a short term loan facility & is a good option if you need rolling credit & not capital credit.
#6 – Overdraft Facility
If you are a business with Good Financial Health, an overdraft facility is something you could be eligible for. As per Google – “An overdraft facility allows you to write cheques or withdraw cash from your current account up to the overdraft limit approved. It is a short-term (usually up to 12 months) standby credit facility which is usually renewable on a yearly basis. It is repayable on demand by the bank at any time”. Certainly good for short term working capital requirements.
#7 – Government Grants under various schemes
Every sector has grants or subsidies to benefit from. It may not be huge for an individual business but could serve a part of your cash flow requirements. Since they are sector specific the best option is to reach out to your industry association. Even MSME offices are a good start, if you belong there.
Bonus #8 – Crowdfunding
Bonus #9 – Seed / Angel Investments
Bonus #10 – Venture Capital Investments
All the 3 bonus points mentioned above are not loans but fund raising opportunities. They typically invest in your business and hence become shareholders. Good for non conventional businesses, idea under test, prototypes, high risk but high reward ventures, etc. You can find more specific answers on google as well.
|Requirement : Working Capital ( Short Term )||Requirement : Capital Purchase / Expansion / Setup ( Long Term )||Requirement : Investments in the business / idea|
|Overdraft Facility||Business Loans from PSU Banks||Crowd Funding|
|Government Grants under various schemes||Business Loans from Private Banks||Seed / Angel Investments|
|Bill Discounting or Invoice Financing||Business Loans from NBFC’s||Venture Capital Investments|
|Loans from PSU Financing Corporations|
With a whole bunch of lending options, it has indeed become easier and faster for entrepreneurs to fund their businesses. Availing a loan has almost become a cakewalk, but repaying can turn a slippery walk if your finances aren’t done right. Determine which of the small business loans you qualify for – based on credit score, time in business, annual revenue, average bank balance etc.
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