Small Business Loan

The Business Journals

A loan is a borrowed sum of money, that is expected to be paid back with interest. A person, group of people, organizations, or any other entities lend money to people in need of a loan and that person incurs debt and is liable to pay interest on that debt until it is repaid, along with the principal amount.

A collateral loan is a secured loan in which the borrower pledges an asset to take a loan, this kind of loan is less risky for lenders, as they can liquidate the collateral in case the borrower doesn’t return the loan amount, but at the same time it also benefits borrowers to some extent because they can take higher loan amount at smaller interest rates.

Small Business-

Small businesses are just like regular businesses, just smaller in size because they have fewer employees and less annual revenue compared to regular businesses. Small businesses can be owned by individuals, corporations, in partnerships, or sole proprietorships. These businesses help a lot in improving the economic condition of a country, and these small-scale industries do not invest more than a crore in their business.

Characteristics of Small-scale Businesses-

  • Flexibility: Because they are small, they can easily adapt to social changes and include new trends in their business.
  • Labor Incentive: There’s less machinery and more manual/labor work in small-scale businesses.
  • Resources: Small-scale businesses do not ponder much over from where and how they will get their resources, rather they utilize the local resources and make the best use of them.
  • Ownership: There’s only one owner in a small-scale business. That’s why it is called sole proprietorship. 
  • Management: All management works are controlled by the owner.
  • Limited Reach: Though, social media has extended the reach of small-scale businesses, still, their reach is limited to restricted areas only.

Small Scale business loans-

Starting a small-scale business and running it, takes a lot of courage, confidence, skills, and resilience because it’s owned by a single owner. Now taking a loan for small startups creates a million more problems for the owner, it raises a hundred questions like how they will get the loan. And Who will provide them with the loan? Do they need to put collateral for a loan?

So, as a small business owner, one must keep a few things in mind like taking the advice of a financial expert or an accountant, because taking debt is uncertain and risky and one wouldn’t want to jump into this pool of uncertainty without holding on to some strings at the shore. Analyzing and clarifying your business needs, observing your clientele, creating a mindset for how much debt can you take, and combining all these before taking a loan can cut the risk in half.

The Wall Street Journal
Image Source: The Wall Street Journal

Image Source: The Wall Street Journal

Eligibility for taking a small business loan-

  • Borrowers should be self-employed professionals, traders, manufacturers, or retailers.
  • The borrower’s minimum turnout should be 10,00,000 in the last 12 months.
  • The minimum age to apply for the loan is 21 years.
  • The maximum age for loan maturity is 65 years.
  • The borrower must have 5 years of experience in business and 3 years of running his business.

Types of small business loans-

  1. Line of Credit: Technically not a loan, this borrowing option functions as a credit card, with lower interest rates and higher utility.
  2. Installment Loans/ Term Loans: This option follows the traditional way of lending. It is tied upon an agreed-upon repayment period.
  3. Equipment Loan
  4. Commercial Loan
  5. Microloan
  6. Startup loan

Steps to take small business loans-

The procedure for applying for small business loans is quite simple, though, with its risks and uncertainty, financial institutions and banks make sure that the process of lending and borrowing goes smoothly. One just has to keep a few things in mind and follow some steps to take out a loan for one’s small business.

Firstly, Check the Criteria- thoroughly read them before filling out the application form, to avoid rejection later. Secondly, Fill out and Submit the Application form, and lastly, wait for your loan to be approved.  

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