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How Can Small Businesses Get Funds With A Gold Loan?

Small businesses can benefit from gold loans. Minimal documentation, competitive rates, and flexible repayment. Explore the advantages in our guide.

27 Jun,2023 18:29 IST 2095
How Can Small Businesses Get Funds With A Gold Loan?

Small businesses play a crucial role in the economy but often face financial obstacles that hinder their growth. One common challenge is the need for funds to address short-term requirements, seize new opportunities, manage unexpected expenses, and sustain operations during difficult periods. Access to capital is vital for the development and sustainability of small firms in today's competitive business landscape.

While traditional loans can be challenging and time-consuming, an alternative option that has gained popularity is obtaining funds through a gold loan. Gold loans offer several advantages over conventional lending options, making them ideal for MSMEs.

The Micro Small and Medium Enterprises (MSMEs) are the backbone of India’s economy. As on October 25, 2023, there are 1,95,72,421 micro businesses, 5,77,903 small and 53,918 businesses registered on the Udyam portal. The sector has grown in size and is a chief employment generator for 13,68,90,668 people in the country.

From these statistics it is easy to understand how vast the MSME ecosystem is and the amount of capital they need to fund their businesses. Banks and other lending institutions have conventionally been a leading source of funds, generally for big businesses. Small businesses do not have access to big lenders owing to the small size of their operations.

Given this, how do small and micro businesses then get their funds to run their daily operations especially when they have an emergency? Or how can they arrange for a really big amount of funds in a short time? Waiting for a long time to source funds can result in losing the order or a shutdown. Also, often small businesses don’t have enough collateral to raise funds.

What Is A Gold loan?

A gold loan is a secured loan to borrow money against your gold asset. The loan tenure generally lasts 3-24 months. You can pledge gold assets with a purity of at least 18 karats and receive a loan of up to 75% of its value. Once you repay the loan with interest, the lender will return your pledged gold.

Why A Gold loan?

Small businesses often need more access to financing but require quick cash flow for emergencies and other urgent needs. However, they may need more collateral or want to give up control to investors. In such cases, gold loans offer an ideal solution. These loans allow small businesses to secure capital without compromising ownership. Obtaining a gold loan is a simple process with minimal requirements, focusing on the gold's purity and weight. So, how to avail a gold loan? To get gold loan, you only need to apply online or contact a lender offline, submit the documents, and give your gold for evaluation. The amount will then be sanctioned quickly after verification. Gold loans ensure consistent cash flow and help businesses avoid potential failure.

Benefits Of Taking A Gold Loan For Business Operations:

Small firms frequently need a consistent cash flow to cover their ongoing costs. The entire company might even halt operations if they don't have enough cash to cover expenses. Gold loans enter the picture at this point. Here are a few reasons why gold loans can be a comparatively helpful option for MSMEs-

1. Less Documentation:

Compared to other credit facilities, the application process and documentation for a gold loan are less stringent. The loan's secured nature, where gold is pledged as collateral, eliminates the need for extensive background checks or complex procedures. Only KYC documents for identity and residence proof are required, eliminating the need for lengthy paperwork and additional certificates. The gold acts as proof of security, simplifying the documentation process.
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2. No Reliance On Credit History or CIBIL Score:

Small businesses with limited credit history need help in obtaining traditional loans. However, gold loans provide a solution as they don't require an extensive credit history or high credit scores. Pledging physical gold is sufficient for financial institutions to sanction the loan with minimal risk.

3. Competitive Interest Rates:

While unsecured business loans often carry high-interest rates, gold loans provide a more favorable alternative. As secured credit facilities, gold loans reduce the risk for lenders, enabling them to offer lower interest rates than unsecured loans. This significantly alleviates the financial burden on small businesses, making gold loans a more affordable financing option. For gold loan in India, the interest rate starts from 7% onwards.

4. Repayment Flexibility:

Gold loans provide flexibility in repayment options for borrowers. They can pay regular EMIs, make a lump sum payment at the end of the loan term, or defer principal repayment by only paying interest. This flexibility eases the repayment burden for small business owners needing immediate funds.

5. No End-Use Restrictions:

Another reason small businesses should consider a gold loan is its flexibility. Unlike traditional business loans that often restrict fund usage, gold loans provide freedom in utilizing funds. Small businesses can use the loan to address various needs, such as paying off debt, covering salaries, purchasing raw materials, or paying rent. This flexibility is invaluable for small business owners, as it allows them to allocate the funds where they are needed most without any restrictions imposed by financial institutions.

6. Gold Loan at Home

The ‘Gold Loan at Home’ is an interesting feature from IIFL Finance, where the applicant can apply for a gold loan from the comfort of their homes. In this option, all the benefits of the standard gold loan apply, the most important of which is, one of the lowest interest rates on a loan against gold.

Conclusion:

Gold loans have emerged as the go-to solution for small businesses to establish, expand, and sustain. Digital gold lending services like IIFL Gold Loan offer fast approval, high loan value, low-interest rates, repayment flexibility, and no end-use restrictions, making it easier for businesses to secure crucial funding when needed. So seize the opportunities without worrying about quick funds and get gold loan at IIFL Finance.

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Disclaimer: The information contained in this post is for general information purposes only. IIFL Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Gold/ Personal/ Business) loan product specifications and information that maybe stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Gold/ Personal/ Business) loan.

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