Hassle-Free Financing Solutions For Small Business

Finance is the foundation of any business. Any financial hiccup can jeopardise the growth and sustenance of a business. But securing capital for small and micro businesses from conventional banking or any non-banking financial institution can be an unsettling experience.

Still, liquidity issues can be managed with alternative financing solutions for small businesses. Capital for running businesses can be of two types: equity financing and debt financing. Debt funding is a loan that is to be returned to the lending institution with added interest. Bank loans, merchant cash advances, business credit lines and business credit cards are forms of debt financing.

Unlike debt funding, in equity funding a borrower does not require to make repayments if the business fails. In exchange, the funders get involved in decision-making and also share the profits of the company.

Here are some of the easy and quick financing solutions available in the market.

Microloans

Microloans are short-term loans designed to suit the needs of micro-entrepreneurs, low-income groups, or small businesses. In India, all loans that are below Rs 1 lakh are categorized as microloans. They are mainly offered by microfinance institutions.

Nowadays, microlending has become a digitized process to include new lenders in the picture. The digital lending system brings borrowers, lenders and investors to one common platform.

Usually, lenders require applicants to have a certain credit score for a loan application. Many online lenders also offer loans with no credit check.

Line Of Credit

A business line of credit (LOC) is a revolving loan, typically unsecured in nature. It means individuals can borrow money repeatedly up to a set limit while repaying a portion of the pending current balance through regular payments. In non-revolving LOCs, once the LOC is returned in full, the account is closed and cannot be used again.

Unlike a traditional term loan, borrowers can use the funds for diverse purposes, like business purchases, logistics or operating expenses. Most lenders do not require any collateral for this type of business credit, but putting up collateral can make the loan disbursal process smoother and quicker. A good credit score can also be beneficial.

Business Cash Credit Card

As can be deciphered from the name, a business cash credit card is a credit card designed for use by businesses. As opposed to personal credit cards, which are used by individuals, business credit cards help business persons to secure credit required to manage monthly expenses in business.

A business credit card is a good way to separate all work-related expenses from personal spending. This separation, later, helps in accounting and tax calculation. Being unsecured debt, they have slightly higher interest rates than traditional loans.

Invoice Financing

Invoice financing or receivable financing is a form of short-term borrowing where lenders borrow money against unpaid invoices. In this form of business loan, the lender takes the borrower's outstanding invoices as collateral and offers a loan at a certain percentage of the total monetary value of the invoices.

Since invoices act as collateral, the lender limits the risk of loan default. In return, the borrower gets most of the value immediately.

Invoice financing is a good funding option for easing cash flow problems but it is necessary to have a reliable customer base for this type of loan.

Equipment Loans

Equipment loans are used to obtain any tangible business equipment other than real estate. The equipment serves as collateral for the loan and the lender can take possession of the equipment if the borrower defaults on making the loan payments. Most lenders offer loans up to 80% of the equipment’s value.

The interest rates on equipment finance loans depend on the borrower's creditworthiness. Though it is easy to secure, equipment financing may not be ideal for businesses with cash flow issues.

Inventory Financing

Inventory financing is an asset-backed financing solution for small businesses to increase their cash flow. In this type of loan, the lenders ascertain the inventory value of the business and set a certain percentage of the total value on which the loan amount is granted. The percentage usually ranges between 50% and 90% of the inventory’s value.

Conclusion

There are many private and public banking and non-banking financial institutions in India that offer business loans. These loans can be of various types and for various purposes. So, you must choose the most suitable financing option depending on your requirements.

Since every financial institution has its own terms, it is always recommended to check, compare and choose the right lender. Needless to say, you must select a reputed and regulated lender.

While state-run banks seem the most dependable, many well-known NBFCs such as IIFL Finance offer loans through a far easier process and at competitive interest rates as well as flexible repayment terms.

IIFL Finance, for instance, offers customized business loans to MSMEs. It also provides an online loan application facility through which you can apply for a MSME business loan from the comfort of your home or office.