Small business loans are financial loan or product that is tailored to meet the needs of a small business or medium enterprise.
Small business loans are the funds that a company owner receives to establish a new small business or purchase an existing small business for commercial activity. There are several ways to fund a new or current business, each with its own set of advantages and disadvantages.
Types of Small business loans
1. Term Loans: Term loans are one of the most popular types of small business loans and consist of a lump sum of money that you return over a certain period. Typically, the monthly payments will be set and would include interest on top of the principal debt.
2. SBA Loans: For company owners looking for low-cost government-backed loans, Small Business Administration (SBA) loans are more suitable. The government is not directly lending money to small firms through these loans. Ensuring that the loans will be returned, the SBA lowers the risk for the lenders.
3. Equipment Loans: If the business owner wants expensive equipment for your business and the equipment can be used as collateral, you may obtain secured small business loans; these work similarly to a house or vehicle loan. If you do not return the loan, the bank will seize the equipment.
4. Working capital Loans: Working capital loans, as opposed to certain small business loans meant to pay for long-term assets or investments, are used to finance your company’s day-to-day operations. Rent, salary, and debt payments are examples of such procedures.
5. Business credit loans: A small company line of credit works the same way as a credit card. The owner can borrow up to a limit and pay interest on the amount borrowed. One big advantage of this loan is that it estimates how much the person can afford to borrow while also making repayment less stressful.
Advantages of Small Business Loans
Convenience: Borrowers could employ loans to help them accomplish their business goals. To suit their financial demands, company owners can apply for different types of loans. Most of the time, small business loan applications are simple and quick. Small business loans are thus among the least complicated forms of borrowing.
Simple Procedure: The short-term business loan application procedure is relatively straightforward, so things may go forward swiftly. Depending on the lender you decide to borrow from, you may submit an online application from your home or place of business as soon as you realize you need money.
Growth of business: Finance is among the most critical elements that enable a to ensure that all other demands are met. As a consequence, the necessary cash flow may be quite important for expanding a business because it can be utilized for many things. To speed up your work, you may choose a new site or purchase the required equipment.
Cash flow: If the business owner is having trouble balancing the company’s financial flow, a business line of credit might be a useful tool. While waiting for clients to pay invoices and accounts receivable, the owner may use the line to pay personnel and vendors.
Equipment purchase: The company or business most likely requires equipment to work, but because the equipment is typically quite expensive, it may be tough to obtain. To prevent diverting funds from other areas of your company, you can use small business loans to cover the expense of new equipment. It may also provide you with funds to update any outdated equipment.
Tax implications: Small business loans also help save money on taxes. This is due to clauses in the Income Tax Act stating that the proportion of profit used to repay the loan amount is exempt from tax. The interest paid on loans can be used to reduce the company’s taxable income.
Eligibility for Small Business Loans
The general conditions for eligibility for small business loans provided by financial lenders are listed below.
- The applicant must be an Indian citizen.
- The applicant must be self-employed and have at least three years of business experience.
- The applicant must be 21 years and above.
- The applicant must have proof of business turnover, and IT returns for the previous 2-3 fiscal years are required.
- The applicant’s company balance sheet should show profitability.
- The applicant’s financial statement must show the profit.
Documents required for Small Business Loans
Small enterprise owners want an uncomplicated loan application procedure, as well as transparency and very little documentation burden. However, a minimum amount of paperwork is still necessary. This can be done easily with the assistance of an online lawyer who will guide you through the process of successfully applying for and being accepted for a loan.
1) Loan Application: Filling out the loan application form with accurate information is a key step in the loan application process, no matter how intimidating it may look.
2) Age proof: Valid proof of age might be a birth certificate, a passport, a PAN card, or a voter’s ID.
3) Identity proof: Personal identity proof, such as a copy of the applicant’s passport, PAN card, voter’s ID card, or driving license, is required for every company loan, secured or unsecured.
4) Address proof: A legitimate address evidence, such as an Aadhaar card, voter’s ID, ration card, telephone bill, leasing agreement, and power bill, is required to secure a loan.
5)Business Ownership Proof: Other Mandatory Documents such as Sole Proprietorship Declaration, Certified true copy of Memorandum of association & Articles of Association.
Small business loans are a wonderful tool for small business owners looking to grow and expand their operations.
Small business loans, which have advantages such as speedy disbursement, flexible payback terms, and low-interest rates, may assist small businesses in meeting their particular needs at various phases of growth.
Small-business owners can seek legal advice from a business lawyer to identify their company’s strengths and select the best type of small business loan. This, in turn, assures that individuals retain ownership of their businesses.