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Wed, 21 Aug 2019

Northeast Today

Young Entrepreneur’s Guide to Business Loans

Young Entrepreneur’s Guide to Business Loans
April 25
17:34 2019

Entrepreneurship in India is witnessing a peak with companies making a name for themselves from every nook and corner of the country.A surprising thing to notice is that young people are leading most of these companies. With radical ideas up their sleeves, youth is bringing a necessary change in the economy of the country. However, running a business is not easy.From keeping the balance sheet on the positive side to business loan requirements, rocketing the sales chart and recruiting the right talent – a lot is at stake.

 

Entrepreneurs come across plenty of challenges on a daily basisto keep the boat afloat. These challenges can still be given some space and worked out one by one.

Nevertheless, the biggest challenge often comes in the form of a creditproblem. Managing cash flow and finding enough working capital are somethings that cannot be overlooked for a long time. Only a handful of ideas sustain after three years and can turn into a profit.Companies that are looking to expand after three years can avail a business loantosustain their business.

Yes, loans enable entrepreneurs to keep up with their ideas and turn them into a profit. With a businessloan, entrepreneurshave enough capital to keep the business going.However, a loan has many intricacies that all young entrepreneurs need to know.

What is a Business Loan?

It is a financing option that one can avail to meet the needs of the business. It can be used to start a new business, expand an existingone, buy equipment or even boost production. Financial institutions offer both unsecured and secured loans.

Requirements for a Business Loan

The requirements for a loan typically vary from lender to lender and the type of loan. Below is a list of requirements and the eligibility criteria for a loan:

  1. Age Limit –Applicants must be minimum 21 years and maximum 65 years old
  2. Bank Statements – Currentaccountstatements for 1 year
  3. Business Proof – Business must be minimum 1 year old, requires proof
  4. Collateral – Depending on the type of loan (secured vs unsecured), the lending authority will ask for collateral such as immovable property or an asset
  5. Aadhar Number
  6. PAN Card

Types of Business Loans and Mode of Disbursals

Financial institutions provide both unsecured and secured business loans through a range of options.

Unsecured Loan –Unsecured loansrequire no collateral from the borrower and are approved almost instantly. This type of loan is flexible and involvesminimum paperwork.

Secured Loan – Secured loansare given out for much higher capital. Financial institutions will typically require some form of collateral from the borrower. The process is extensive and requires a lot of documentation.

Mode of Disbursals

Ithas two modes of disbursals – instalment and line of credit.

Instalment – In instalment disbursal, the whole amount of approved loan is credited directly to the business’s bank account. The borrower gets a lump sum amount anduses it for their business.

Line of Credit –A line ofcreditworks like a credit card. It is a form of revolving credit where the borrowerhas a sum approved and can withdraw it in smaller portions. Here the borrower has the liberty to withdraw money as and when they want.

Reasons to Take a Business Loan Over Other Investment Options

Entrepreneurship is only viable when there are funds at disposal. A loan can help young entrepreneurs and their start-ups in many ways:

  • A loan is easier to obtain when compared to approaching an investor
  • Only interest is to be paidto the financial institutions
  • No dilution of equity when taking a loan

Things Young Entrepreneurs Need to Know Before Filing an Application

Before any entrepreneur applies for a loan, there are many things that they should know, including:

  1. Clarity of Business

Young entrepreneurs who are running business since a while now should be able to answer the following questions:

It is essentialto be clear of these questions as they can help give a clearer picture of the business. Most financial institutions will require such information if they are giving out secured loans.

  1. Credit Score

A good credit score is perhaps one of the most importantfactors leading to loan approvals. Maintaining a good credit score is essential toestablish trustworthiness among lending authorities. Young entrepreneurs need to know that the more creditworthy they are, the more quickly and easily they can get a loan. So, during the entrepreneurial journey, improving credit score over time is crucial.

A good credit score helps in setting the expectations of financial institutions correctly and also weeds out the defaulters. Repaying capacity is critical for lenders and hence the importance of a good credit score.

  1. Establishing the Need for Loan

A valid reason is necessary to get a loan. Typically, for secured loans, the business applications are approved only if the lender knows there is a valid reasonfor credit requirement.Theneedfor a loan should be realandconvincible to the lender.

Conclusion

Young entrepreneurs are the lifeline of the economy,andfunds should not limit them. Even though the road to entrepreneurship is bumpy and filled with surprises – a lot is achievable on this end. Business loans are a blessing in disguise for entrepreneurs who are expanding to a next level. Many financial institutions offer loans with different requirements, confusing the young entrepreneur.

Financial institutions like ABFL Direct offer business loan without any security depositor even a branch visit. The documentation is minimal, and the loan is approved instantly.

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