Running a business is a challenging and exciting endeavor. You are constantly looking for avenues to bring more business to your company by enhancing your operations, marketing your problems, and hiring an expert team for various dedicated tasks. All these steps require financial backing. As a founder, you are responsible for raising funds for your start. Various financial institutions provide different funding options to raise money for your company.
On top of that, getting a business loan in India has become easier than ever. The increasing awareness about entrepreneurship, the rising number of investors, and business-friendly government policies are reasons why many financial institutions are coming forward to empower entrepreneurs by offering them various business loans. But does one know which is the right business loan for their business?
A simple mistake of choosing an unsuitable type of funding can severely affect your business model and company vision. Therefore, founders must carefully choose the business loan for their company. This article has useful tips to help you choose the suitable type of business loan for your startup.
Know your business requirements
Before you choose any loan that comes your way, you must understand your business needs. The best way to understand your business requirements is to assess various business operations and whether you need any funds to support those operations. If you want to set up an entirely new marketing team, you might need additional funds to hire a team of marketing professionals.
Similarly, you can also assess various aspects of your business model to understand whether it would be viable to get a business loan. Many founders prefer angel investment rather than business loans. You must also ensure that your business loan is aligned with your company vision.
It’s also a good idea to revisit your revenue model. As you would be repaying the business loan, you need to ensure your company generates enough revenue to cover the premiums of loan repayment. You should be able to pay the premium without affecting your current business operation. Founders must understand that business loans are supposed to help you enhance your existing operations and help your business grow. So, it’s always good to choose a hassle-free loan that doesn’t disrupt your current business flow.
Read more: 5 Easy Ways To Pay A Loan Back Much Faster
Know different types of business loans in India
It’s always good to keep your options open when looking to raise funds for your company. You never know if the type of startup funding you are looking for may not be suitable for our business model and goals. Therefore, the founders must know the different types of business loans in India so that they can choose the right one.
Thanks to the rising awareness about startup investment and the increasing number of individual investors and investment firms in India, founders have many options to choose from. There are different financial institutes in India, such as traditional banks, Non-Banking Financial Corporations(NBFC), crowdfunding, angel investors, government grants and funding, and many more. It’s always good to go with a business loan with a lower interest rate, lesser processing time and fees, easy business loan renewals, short turnaround time, and flexibility in loan repayment.
Equity dilution can be a driving factor for many investment types. Founders who want to retain their original equity often prefer funding options like revenue-based financing. In revenue-based funding, you don’t have to worry about giving a share of equity to the investor. Instead, you can repay the investor by providing a payout from your monthly gross revenues. The terms of the repayment can be negotiated with you and the investor. Such funding options can help you raise funds to support your business operations without disrupting your ongoing operations and flow.
Carefully check the agreement terms
Getting a business loan involves a long and tedious process, especially when you don’t have all the necessary paperwork in place. On top of that, many founders get baffled by looking at all the finer agreement terms regarding the loan. The founder must carefully read and understand all the loan repayment and agreement terms.
The agreement terms mention various details about the loan, such as interest rate, loan tenure, collateral, monthly premium amount, etc. The founders must understand all the terms before they sign any loan paperwork. It will help you avoid unfavorable conditions, such as higher interest rates or increased collateral for the loan.
Getting a business loan in India can be challenging, especially if you are doing it for the first time. Before you choose the type of business loan you want, you must assess your business requirements, understand the different types of business loans offered in India, and carefully check the loan and repayment terms to avoid any problems. This way, you can raise working capital for your business without much hassle.
Read more: Benefits of An SME Loan For Your Business
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