It is such a huge amount of money required to start a business. Infrastructure and employees form the biggest list of expenses. Of course, some entrepreneurs have personal savings or friends and family investing. Such money may not be enough for most cases. That is when new business loans become applicable.
However, one needs to understand when and why a new business loan should be taken. In this article, we will discuss when a business loan can be helpful, what factors one should keep in mind before applying, and how you might use an EMI calculator online to guide you in making the right choices.
New Business Loans
These are new startup and earlystage business financial products. New business loans can be used to buy equipment, lease office space, employ staff, or for marketing.
The loans under this loan facility are provided by the banks, NBFCs, and other financial institutions under New Business loans. As per demand, the loan is secured or unsecured, and hence the terms of loan are different as per interest rates, and repayment tenure, which will change based on credit score, business plan, and the customer's financial projections.
When to Apply for a New Business Loan
This is indeed a very large financial decision. Even before applying for it, there should be a very detailed study of the needs of your startup and growth potential. A few scenarios where this can be helpful are the following:
1. Cover Initial Setup Costs
Costs for setting up an initial business are quite very high and include the following items:
equipment or machinery
Office spacerent or leasing the same
Raw material acquisition
Technology infrastructure setup
A business loan is the source of finance when there is not an adequate amount to fulfill these costs.
2. Working Capital Management
Working capital represents the money to be expended to pay for the operating expenses of the business on each day like salaries, buying stock, or utility bills. Most of the small business entities face cash flow in their initial years of business activities.
A business loan will help sustain liquidity that will keep the business moving until it begins to produce regular income.
3. To Take Advantage of Growth Opportunities
Sometimes growth opportunities come up that can take your business a long way forward. These can include;
Taking a new location
The launching of a new product or service
A partnership with a leading client
If such capital to seize such opportunities is not there, then the same can be sourced by taking a business loan.
4. For Marketing and Branding Fund
Marketing does help in creating brand awareness as well as in getting customers. However, quality marketing requires an investment. Business loans can fund the following activities among others:
digital marketing campaigns
social media promotions
Engagement of a marketing agency
Early branding of your startup puts it in a different position compared to others and helps push longterm growth.
5. To Build Credit History
If your startup is recently established, then it has no credit history. Securing a small business loan and repaying it in time will increase your credit score. This will enable larger loans once your business is developed.
6. To Pay for Some Unforeseen Expenses
Unforeseen expenses, such as equipment breakdowns or market fluctuations, can affect your business plans. A new business loan can offer a cushion to meet such emergencies without affecting your operations.
Considerations Before Applying for a New Business Loan
Although a business loan can be quite helpful in meeting your financial needs, there are some considerations before applying:
1. Amount of the loan
Decide on the amount you require. The consequences of overborrowing include high interest costs whereas with underborrowing you do not have as much to go around.
2. Interest Rate
Compare the interest rates being provided by various lenders. Less means a lower total cost in interest. Check if this is fixed or floating and moves in tandem with market conditions.
3. Repayment Tenure
Now, choose a tenure that falls under affordable EMIs with lowinterest payout. Lower tenures are aligned with higher EMIs, which is again aligned with lesser total interest payout and vice versa for longer tenures.
4. Online EMI Calculation
An EMI calculator online is a tool that will help you estimate your monthly payments based on the loan amount, interest rate, and tenure. It will give you clarity about whether the loan is affordable and will help you plan your finances better.
How to use an EMI calculator:
Input the loan amount you wish to borrow.
Input the interest rate offered by the lender.
Choose the desired repayment tenure.
The calculator will then calculate and display your approximate EMI.
This is very handy while comparing offers from a number of financiers.
5. Eligibility Criteria
Check the lender's eligibility criteria. This may include:
Minimum business vintage, say 6 months to 1 year of operations
Minimum turnover or revenue
Personal credit score (for unsecured loans)
Business plan and financial projections
6. Collateral Requirements
In secured loans, you will need some appropriate collateral that includes property, equipment, or inventory. Never forget there is always a possibility to lose the assets in the case of default.
7. Processing Fees and Other Charges
Lenders may charge a processing fee or prepayment penalty or some kind of late payment fine. All these surcharges will add up to increase the loan's total cost.
How to Apply for a New Business Loan
1. Decide What You Need
Decide what you need the loan for and how much you need.
2. Compare the Available Lenders
Compare several lenders on interest rates, loan terms, and requirements.
3. Prepare a Business Plan
A wellframed business plan depicts the growth potential of your startup and makes lenders believe in your creditworthiness.
4. Collect Documents
Typically, the following documents are required:
Identity proof (Aadhaar, PAN)
Business registration certificate
Bank statements
Financial statements (if available)
Income Tax Returns (ITRs)
5.Apply
Apply online or offline, with proper details and supporting documents.
6. Loan Disbursal
When the loan gets approved, then the disbursed amount of loan money goes into your account.
Conclusion
It is an incredibly powerful tool that can help startups get their financial issues sorted and thrive in business. Whatever it may be -whether you require capital to become operational with your initial expenditures, handle working capital, or to exploit growth opportunities- the new business loans support.
But looking into your needs, examining all the options available by the lender, and finally making use of online EMI calculators, can give you a significant opportunity. So, plan your loan application along with how you would repay and that is how financial aid for your new venture would get steered towards longrun prosperity.
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Image Credit: KhasKhabar.