Business loans are loans specifically designed for corporations. There are many types of business loans such as term loans, business lines of credit, SBA loans, equipment financing, microloans, commercial real estate loans etc.
Why do we need business loans?
Businesses require loans to meet the cash flow needed to run a business from procuring raw material, hiring workers, fulfilling orders or reinvesting money to scale up business. A business loan may be needed to get over a temporary shortfall in money to make necessary payments. Some companies also take loans for cibil improvement and build their credit profile.
How does a business loan work?
Business loans give owners an opportunity to invest money in their business. The lender gives capital to the owner at an interest rate which needs to be repaid over a certain period of time. Generally the term of these loans are 5 years. There are different types of loans each having different features and eligibility. Different information is crucial for business loans such as how long you are in that business, financial health of your company, credit score, any collateral available etc. Many cibil score repair agencies help these businesses in cibil score improvement so the business can get desired loans.
There are different types of business loans –
- Term loan
- Short-term loan
- Equipment financing
- Invoice financing
- SBA loans
- Business lines of credit
- Merchant cash advances
Let us understand the myths about business loans –
- Bank is the only option to procure business loan
The financial industry has evolved over the years and banks are not the only option available to fund your business. A lot of financial institutes are available in the market. These financial companies are offering business loans at a competitive rate to the consumers. Apart from banks you can get capital from credit unions, online fast money lenders, private businesses, payday lenders, P2P (Peer to Peer) loan lenders, cash advances etc.
- Business loans are meant for small companies
This is not true. Business loans are for any entity whether small or big. Even large companies can avail loans. Amount of loans depends on the financial health of the organization. A healthy business will be able to procure desired funding from a financial institute.
- Lesser business loans means lesser chance to procure it
This is also a myth. Opting for a small business loan doesn’t mean that you will not get it. Based on your requirement you can approach the financial institute for loan even if it is a small amount. What matters is the credit health of your company. If you have a good credit score, you will get a loan easily at your preferred term. You can also take help of a credit repair company for cibil score improvement.
- Perfect credit score is the only criteria to avail loans
This is also not the case. Good credit score is one of the factors, which is considered while lending loans. However, it is not the only factor considered. Business revenue history, cash flows statement, business plan and other financial statements are also required to determine whether a company is eligible for loan or not and how much loan it should be given.
- Getting a business loan is time consuming
People usually think that processing a business loan takes many months and getting a business loan is a time consuming process. However, this is not true. It generally takes 4-5 working days from application to approval of loan if all the documents are in perfect order.
- Collateral is mandatory to avail business loans
There are many loans such as unsecured lending, unsecured business lines of credit, business credit cards etc where collateral is not required to avail credit facility from financial institutes. They generally ask for personal guarantees in case business default on repayment of loan. The business owners have to pay from their pockets in case the payment is not done.
- All business loans are same
This is not true. A business loan required to buy inventory comes with different terms and conditions and the financial loan for the purpose of marketing campaign is different. Different loans have different terms based on the company’s need for the cash. Some loans require collateral whereas others doesn’t
- Start up doesn’t get business loans
It is often considered those businesses which are well established for a long time get loan approvals whereas it is difficult for a start-up to avail loan. Microloans are start-up friendly loans which are given to promote new businesses. New companies can also avail an equipment loan which doesn’t require collateral or large credit history. Another credit facility which a new business can avail is business credit card. This can be used to cover the working capital needs of business owners.
- Interest rates are non-negotiable
Interest rates are not fixed and depend on credit worthiness, collateral available, past loan history and financial documents of a company. If you have things in your favor, you will get favorable interest rates. However, if the company size is small or your credit history is weak, you might end up with a loan with a higher interest rate. The CIBIL score not only reduces the time to get these loans but also better rates to the company so it is mandatory for a company to improve on their credit report if they need better deals and finances from companies.
- You don’t need to maintain credit score after you have availed loan
This is true that high credit scores are required to avail the desired amount of loan at better rate. However, this is a myth that you don’t need to maintain a good credit score after you have received a loan from a bank. A credit report captures even the loan repayment of a customer and if you are not repaying your loans timely or missing the timelines, this will lead to a bad credit and next time when you go to avail credit or restructuring the same loan, your application might be rejected.
No matter what the size of your business, there is a loan for you and if you will maintain a good credit history, you will likely get a desired amount of loan with better terms.