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Top reasons to take a Business Loan

If you are looking at ramping up your business, applying for a Business Loan is the right option.

March 28, 2022 / 11:42 AM IST

Successfully running and growing one’s own business or enterprise is a dream shared by several millennials and youngsters today. A budding entrepreneur has an idea that he/she wants to put into action and create an enterprise out of it. Any business requires land, labour, capital, and entrepreneurship, commonly known as the factors of production according to the traditional economic theory. Land and labour require capital and hence capital is of paramount importance for the smooth functioning and expansion of one’s own business.

During its initial days, when an enterprise is smaller in size, one can fund it through self-financing or borrowing from friends, relatives, etc. Once a business begins to mature, it needs further capital for growth and expansion. The loan provided by banks and financial institutions for this purpose is called a Business Loan.

Nearly all businesses need external funding at some point or the other. As an entrepreneur, you need to be aware of the common reasons why you need a Business Loan. But before that, let us quickly understand what a Business Loan is.

What is a Business Loan?

A Business Loan is an unsecured loan provided by banks and Non-Banking Financial Companies (NBFCs) for investment into a business to fuel its growth or to manage day-to-day expenses. A Business Loan can be used to fund capital expenditure, operating expenses, working capital expenses and so on. It can be used for a diverse range of purposes, all related to the business. While there are other ways of inducing capital into the business such as selling a stake to investors or getting listed; these result in dilution of promoters’ stake. Hence, a Business Loan is a preferred option as it keeps the capital structure unchanged.

Let us examine some common uses of Business Loans in India. In other words, these are the top reasons to take a Business Loan in India.

    1. Marketing your products and services

    As new-age entrepreneurs, you should not remain contented with simply delivering good products or services. You must keep telling your target audience what you do. For this purpose, you might want to hire a few marketing experts to stay competitive. Marketing is not a one-time job and requires continuous investment.

    2. Hiring more staff

    As the scale of operations increases, you might want to hire more staff for your company. The cost of hiring good talent and training them involves a considerable financial outlay. If you find yourself unable to fund this expense at a pace as fast as your hiring, you may think of going in for a Business Loan.

    3. Bridging working capital

    All businesses require working capital for their day-to-day operations. Simply put, working capital is the difference between current assets and current liabilities and it arises during the natural course of business. Sometimes, there are seasonal spikes in demand for products which could result in a higher working capital requirement. A Business Loan can help tide over such a situation.

    4. Purchasing inventory

    Businesses usually stock up inventory ahead of a high-demand season so that production can match up to demand. This requires purchasing considerable inventory in a short duration. A Business Loan can come in handy to bridge this gap till revenues stabilize.

    5. Investing in new machinery

    Any business requires to invest in new machinery and technology to stay competitive and profitable in the long run. Such equipment can be expensive and hence buying it using a Business Loan makes more sense, as it does not strain your finances.

    6. Consolidating existing debt

    If you have several debts running at different interest rates, you can consolidate them into a single Business Loan at a lower interest rate. This has three advantages – the lower interest rate eases your finances, a single debt is easier to manage than multiple debts and lastly, a better-managed debt repaid promptly improves the credit score.

    Like a Personal Loan, a Business Loan can be used for multiple purposes. The requirement is that the proceeds from a Business Loan must be deployed in your business and not used for any personal reasons. There are lenders such as Poonawalla Fincorp that offer a Business Loan at attractive rates, with no hidden charges and with best-in-class customer service. If you are looking at ramping up your business, applying for a Business Loan is the right option.

    Moneycontrol journalists were not involved in the creation of the article

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first published: Mar 28, 2022 11:39 am
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