As the wave of entrepreneurship engulfs India, it has become common to see several small, independently operated businesses come to the forefront. Several entrepreneurs nationwide have followed this encouraging trend and set up their ventures. While some of these ventures have scaled up to become significant startups, most others continue as small businesses at a local scale.
The skills required to run such small businesses vary significantly from those that are required to run a conventional business. While big businesses have the advantage of economies of scale, mass customer appeal, and the potential to gain financial capital, things operate slightly differently for small businesses. Let us understand this domain and how small business financing can help your business succeed.
A small business is an independently owned and operated business with less than 500 employees at a given duration. These are mostly owned privately and are handled by an individual, a family, or a small business partnership. These are also defined in terms of revenue; a company with an annual revenue relatively lesser than a regular business is considered ‘small’ in the business sense.
Small businesses face one major barrier to getting funding. Business financing is a long-drawn and intensive process with several rounds of verification and checking. At the scale of small businesses, it becomes challenging to display good revenue figures or show positive growth projections. Often, these businesses fail to provide enough collateral as security as well. Hence, banks and financial institutions hesitate to provide such businesses with loans. To overcome this financing challenge, the government and banks instituted the mechanism of small business loans.
Benefits of a Small Business Loan
A small business loan can help your business in more ways than one. Here are a few of those ways:
Training and Development
Expanding the Business
Better Talent Acquisition
How Can You Get a Small Business Loan?
Applying for and receiving a small business loan is more straightforward and quicker than a regular loan application process. In most cases, the bank verifies your documents and grants you the loan within 48 hours of your application. The process can be undertaken online with a simple step-by-step verification process. The documents required for this are also easy to furnish and procure – identity proofs, residence proofs, business proofs, income tax documents – and a few other essential documents.
For every loan offered in the market, the tax brackets on them are to be considered. The interest paid on such loans is tax deductible; This implies that the borrower can remove the interest amount from the total earned income, reducing the amount of income that needs to be paid as income tax. Lastly, these loans are available at no-collateral options, implying that small businesses can avail of this loan without putting any valuable assets on the line. A culmination of all these factors makes it lucrative and rewarding for a small business to consider this loan option.
All major banks in India provide small business loans. These loans are offered in terms of a term loan and a working capital loan, according to the business requirements. The Government has also actively begun to support small and medium enterprises, also known as SMEs. The contribution of SMEs to the country’s GDP and economy has significantly increased in the last four to five years.
This has led to an increased Government interest in this sector. Schemes like the Pradhan Mantri Mudra Yojana, Startup India Seed Fund, and other support ventures have boosted SMEs’ growth and pushed them towards growth and development.
In conclusion, the benefits of a small business loan for your small business are immense. But with the many options available and the different clauses, evaluating and understanding each option becomes essential before choosing the most suitable one for your business. To understand the practical aspects of a small business loan, you can use simple online tools, such as the business loan EMI calculator, that quantify the costs and benefits of your loan. By entering some basic information about your loan’s clauses, you can get a larger picture of how this loan will benefit your business.
First Published: Mar 24 2023 | 7:48 PM IST