The Indian economy is constantly growing with small businesses. Business loan seems like a dream come true. Sometimes, to avail a business loan in India, several challenges arise.
1. Secured Business loans
Secured loans are where the person/s when starting a new business can pledge any asset like gold or property that they have as collateral to get a loan. In the case of an existing company taking loan for any purpose can pledge any of its assets to acquire the loan. This is the best way for people or company with bad credit to definitely get a loan and at good terms.
Although banks are reluctant in providing business loans to individuals with a bad credit score, they may be willing to do so under certain conditions. For example, some banks may agree to provide the loan at a high interest rate. Further, if you have a fixed deposit with a bank, you may be able to obtain a loan up to the amount of the deposit held.
Business loans are designed to help small businesses and entrepreneurs meet their capital requirements. There are over 30+ banks and financial institutions in the country that offer tailor-made business loans at attractive interest rates to suit your financial requirements. One can take business loan to start a new project, expand the current business to a new location, and buy new equipment, purchase office space and assets.
3. Overdraft Facility from your Bank
Overdraft is a form of loan in which a total credit limit is sanctioned by the lender. The interest rate is calculated only on the utilized amount form the total sanctioned limit. If a borrower has a good relationship with the bank and manages a current or savings account with the same bank, then he/she can avail overdraft and can use it for business related purposes. Banks generally do not check CIBIL score before sanctioning a credit limit.
Overdraft facility is a financial facility or instrument that enables you to withdraw money from your bank account (savings or current), even if you do not have any account balance. Like any other credit facility, the bank levies an interest rate when you avail the overdraft facility.
4. Loan against Gold
Gold Loan is your definitive solution to meet your imperative financial needs. Whatever your reason may be, education, business expansion, personal requirement, medical crisis or any other specified end-use, our Loan against Gold is all you need.
In volatile times and during a contingency you can take a Loan on Gold, for any use other than to purchase jewellery.
Gold is a valuable asset, and with it comes surety and stability, so why not let it work for you? With minimal documentation and quick disbursal, a Gold Loan is a seamless solution. You can avail a Loan against Gold at any time. Our flexible tenure and repayment options ensure that your monthly outgoings are within your budget.
Gold prices at all-time high, gold loans have become a sort of lifeline for small businesses, traders, and salaried and self-employed individuals who are looking for a respite from pandemic-induced financial woes. One of the first decisions to make when looking for a financial institution that offers gold loans is choosing between a bank and a Non-Banking Financial Company (NBFC). Now, several factors determine which is a better option, from interest rates to the safety of the gold you have pledged and several other things.
5. Security-Based Lending
Security-based lending is the practice of raising a loan by offering your existing investments in stocks/mutual funds/ETFs as collaterals. The loan can then be used for making purchases like real estate or personal items like cars. The only thing that this loan cannot be used for is making further security purchases or using the same for depositing of margin.
In order to raise cash for making a purchase, holders of securities can sell their investments, pay taxes on their gains and use the remaining as proceeds for making the purchase. By offering securities as mortgages, investors can continue with their investment strategies. Also, at the same time, benefit from the low rate of interest that such loans carry. However, due to the inherent volatility in the nature of stocks/mutual funds, the risk of forced liquidation tends to be very high for these loans.
6. NBFCs with focus on Business Loans
An unsecured loan is offered to individuals by the banks and NBFCs without any collateral. While it may be difficult to get an unsecured business loan for people with bad credit, it is possible with higher interest rate. Most banks reject your bad credit business loan application as they do not see your creditworthiness beyond credit score and credit report.
There are Non-Banking Financial Companies (NBFCs) that look at your creditworthiness by combining data and technology to approve the loan. They are more flexible with credit score and credit rating. Though the interest rate may be high, you may obtain an unsecured business loan based on your business plan proposal.
7. Request your Current Lender
Another way of getting an unsecured business loan is to approach your local bank where you have the existing loan or credit card. Explain to the bank manager your situation, past mistakes and current business operations and request for an unsecured business loan with low interest. It can get you a business loan without much effort provided you display a promising repaying ability during the negotiation.
8. Business Credit Card
A business credit card can also be used to get a line of credit. The credit eligibility may vary depending on your past payment history, etc. Although obtaining a business credit card may be easier than obtaining a loan, it’s important to know that the interest rates associated with such cards are typically very high.
A business credit card is a card specifically designed for business expenses rather than for an individual’s personal use. Business credit cards help businesses and corporates in streamlining their expenses and avail several business-specific benefits. A number of banks are offering business credit cards with multiple advantages. Here we have listed some of the best business credit cards in India which would help you choose the ideal card as per your requirement.
9. Revenue-Based Loan
Revenue-based financing, also known as royalty-based financing, is a type of capital-raising method in which investors agree to provide capital to a company in exchange for a certain percentage of the company’s ongoing total gross revenues. It is an alternative investment model to more conventional equity-based investments, such as venture capital and angel investing, as well as debt financing.
In this option, the business receives funds in full upfront, and agrees to repay the loan based on a percentage of the future monthly revenue. The repayments continue until the principal and interest are fully paid. For a revenue-based loan, the company must have a good credit score and must make above Rs 100,000 sales in a year. Moreover, the loan amount cannot exceed 10% of the company’s revenue.
10. MUDRA Loan
MUDRA Bank or Micro Units Development and Refinance Agency Bank, is a new initiative by the Government of India set up for the development of micro units and refinance of MFIs. This bank has been conceptualized in order to encourage entrepreneurship, by offering funds to the non-corporate small business sector.
The loan under Pradhan Mantri Mudra Yojana (PMMY) can be availed by any Indian citizen, with a credit requirement of Rs 10 lakh and has a business plan for a non-farm sector income generating activity such as trading, manufacturing, service sector, or processing. A Bank, MFI (Micro Finance Institution), or NBFC (Non-Banking Finance Company) can be approached for availing of MUDRA loans.
Offerings of MUDRA Loans
- Mudra Shishu Yojana
Banks offer loans up to Rs 50,000 under the Mudra Shishu Yojana. Being a basic scheme, a nominal interest rate of around 10% to 12% is charged for the loan.
- Mudra Kishor Yojana
A loan amount of Rs 5,00,000 is offered under Mudra Kishor Yojana. Categorized as unsecured loan and being a middle scheme the rate of interest ranges from 14% to 17% depending on the bank, where loan is availed.
- Mudra Tarun Yojana
The last scheme offered is the Mudra Tarun Yojana, where a loan amount of Rs 5,00,001 to Rs 10,00,000 can be availed. An unsecured loan, this comes with an interest rate of 16% and may vary according to the bank approached.
11. Peer-To-Peer Lending
With a low CIBIL score, getting a business loan can be difficult. You can try getting a loan from peer-to-peer lending (P2P). The amount of loan offered by such entities is quite small and there is no need for any kind of collateral or security from the borrowers. However, the rate of interest charged for these loans is quite high.
Peer-to-peer lending is a form of crowd-funding used to raise loans for people who need to borrow, from people who want to invest. It enables individuals to borrow and lend money without any financial institution as an intermediary, and extends credit to borrowers who are unable to get it through traditional financial institutions.The main idea is savers getting higher interest by lending out their money instead of saving it, and borrowers getting funds at comparatively low interest rates.
It typically uses an online platform where the borrowers and lenders register themselves. Due diligence is carried out before allowing the parties to participate in any lending or borrowing activity. All P2P platforms will now be considered non-banking financial companies and regulated by the RBI.
12. Invoice Discounting
Invoice discounting is the practice of using company’s unpaid invoices to raise working capital for improved operational efficiency. Invoice discounting enables businesses to gain instant access to cash tied up in unpaid invoices and tap into the value of their sales ledger. It’s simple: when you invoice a customer or client, you receive a percentage of the total from the lender, providing your business with a cash flow boost.
Another way to look at invoice discounting is by seeing it as a series of short-term business loans using invoices as security. In other words, the lender knows that you’re owed the money, so will lend you most of it before your customer has actually paid you.
Invoice discounting and factoring have become a major source of working capital finance since the restriction of bank financing, as a result of the credit crunch. Invoice finance is more attractive to a bank because it depends on the collateral of the invoice due from the debtor. New, post-credit crunch bank capital regulations have resulted in banks transitioning companies away from unsecured loans and overdrafts and on to this mode of lending.