A business loan or an MSME loan is an essential part of every business house. It is highly unlikely that an individual will be using their savings to further their cause. It is not just a financially prudent decision but also a risky one.
Savings are kept to overcome future challenges and sudden emergencies. In the times when it is easier to avail collateral-free loan, availing of a business loan is the best thing to do.
Here is how the availing business loan is beneficial for new entrepreneurs and should one go for it?
A business loan can be availed for many reasons. The inherent feature for any business loan or MSME loan is its flexibility. An entrepreneur will need a loan and preferably a collateral-free loan to scale up. There will be numerous costs that are sunk in to build up a business.
A business loan therefore can be used for the myriad tasks at hand. One can even use it to restructure debt and add machinery to the existing plant or factory. There are long term and short term business loans too.
One can have a look at the numerous financial institutions advertising business loans. The intense competition has ensured that every lending organisation offer the best business loan interest rates. The applicant has to do thorough research before signing on the loan papers.
As mentioned in the previous point, one of the reasons why a business loan has become an attractive proposition is because of the business loan interest rates They aren’t just low and affordable but also do come with several features like deferred interest payments, collateral-free business loans et al.
These features are embedded to make the business loan more enticing for the consumer. Every lending institution offers flexible and affordable business loan interest rates. Alternative options like NBFCs offer greater benefits through income tax reliefs and nil prepayment penalties.
The processing fee is nominal and given the competitive rates, the applicant can save a lost on the lending cost.
For entrepreneurs, one of the headaches is the repayment of the loan. For an old business, existing for many years in the business, there would be enough revenue channels to pay the loan off from. But for new businesses, paying the monthly interest may always prove to be a challenge.
Also, there might be a time when the new business wants to repay the business loan in one go but may find the prepayment penalty too steep. Due to the intense competition between the numerous financial organisations, the prepayment penalty has been minimised to the point where it doesn’t cause much of a concern to the borrower.
A business loan availed would mean that the borrower has to repay some part of it every month as a recurring EMI. This is a kind of financial load that many new businesses may find hard to tackle. On top of that, there is a tax that gets added to the monthly interest rates.
To overcome this challenge, the Government of India has introduced a tax rebate. This a form of tax relief. Provided to new businesses.
The principal amount will not come under any tax review and hence there will be no tax rebate about it. The interest amount is considered for the rebate.
As suggested previously, business loans are flexible when it comes to the features and benefits, one of them being the loan tenure. The tenure of the MSME loan or the collateral loan can be selected at your discretion.
The usual period can be anywhere up to 5 years. The sole focus of the entrepreneur can therefore be put on the business itself.
Lastly, a business loan is a necessity for the expansion of any business. When effectively used, it can benefit the business manifold.