What Is The Best Source For Small Business Loans?

Decision regarding which small business loan option is suitable must be made carefully. Read to know about the best sources for small business loan.

24 Nov,2022 06:05 IST 193
What Is The Best Source For Small Business Loans?

Almost every small business owner will need funding during their business life cycle. You can use these funds for working capital expenses, new investments, equipment purchases, wages, advertising, or any other purpose to help the business grow. However, you should know your financing options before choosing a suitable loan.

Sources Of Small Business Loans

• Banks

Banks provide loans to small businesses. However, before offering loans, banks must follow several norms enforced by the Reserve Bank of India. Due to high internal scrutiny, obtaining a small business loan from a bank can be a lengthy and complex process. Some small businesses may not qualify for such loans because of requirements such as turnover, minimum years of operations, etc.

• Government Schemes

Since the COVID-19 pandemic, the government has introduced many schemes for small business loans. They provide loans or credit with guaranteed repayment to lenders if borrowers default. The government backs loans to micro, medium, and small enterprises (MSMEs) up to Rs 2 crores under the Credit Guarantee Scheme. A state-owned bank, a private bank, a regional rural bank, or an NBFC can provide these loans.

• NBFCs

Bank approval procedures are often lengthy and complicated. Furthermore, their eligibility requirements are demanding, making non-banking finance companies one of the most effortless sources of small business loans. Business loans provided by NBFCs are more convenient to obtain with little documentation.

• Micro-Finance Institutions (MFIs)

The purpose of microfinance institutions is to bridge the gap between the rural population and banks regarding loan needs. Microfinance institutions provide loans for businesses, too, in underserved areas like villages. In most cases, however, these loans are of a minimal amount.

• Other Financial Institutions

The government sets up many financial institutions to lend money to specific businesses, such as power production, tourism, and infrastructure. These include IFCI Ltd, Small Industries Development Bank of India, and Power Finance Corporation Ltd. However, such government institutions have stringent lending criteria, occasionally making small business loans challenging.

Which Option Is The Best For You?

Different businesses have distinct needs. Therefore, as a business owner, you must carefully decide which business loan option is most suitable for its recurring operational needs. Before applying for a loan, it is wise to draft a business plan, analyse the terms and conditions of several lenders, and compare them.

Frequently Asked Questions

Q1. Name some government schemes for small business loans?
Ans. Some government schemes for small business loans include:
1. The MSME Loan Scheme
2. Credit Guarantee Fund Scheme
3. MUDRA Loan
4. Credit-Linked Capital Subsidy Scheme

Q2. Among the sources of small business financing, what is the most common?
Ans. Small and medium-sized businesses often apply for bank loans for funding.

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.

Most Read

Check the Difference Between 24k and 22k Gold
9 Jan,2024 09:26 IST
59613 Views
Like 7297 7297 Likes
Franking and Stamping: What’s the difference?
14 Aug,2017 03:45 IST
47196 Views
Like 8707 8707 Likes
Why Gold Is Cheaper In Kerala?
15 Feb,2024 09:35 IST
1859 Views
Like 5241 1802 Likes
Personal Loan With Low CIBIL Score
21 Jun,2022 09:38 IST
30058 Views
Like 7547 7547 Likes

Get in Touch

By clicking on Apply Now button on the page, you authorize IIFL & its representatives to inform you about various products, offers and services provided by IIFL through any mode including telephone calls, SMS, letters, whatsapp etc.You confirm that laws in relation to unsolicited communication referred in 'National Do Not Call Registry' as laid down by 'Telecom Regulatory Authority of India' will not be applicable for such information/communication.
I accept the Terms and Conditions