Every aspiring entrepreneur’s dream is to set up a start-up and make it a success. However, when the time comes to scale up a small and mid-size company, MSMEs have more funding options than ever. Ranging from equity to debt, there is a whole spectrum of routes to raise funds and fund various business expansion plans. Still, one of the most common methods for funding existing business operations is applying for a loan for business. Let’s take a closer look at how Business Loans can help a company grow and expand.
What is a Business Loan?
Many NBFCs specifically design unsecured Business Loans or SME loans to help grow existing businesses. These are contractual agreements between business owners and loan providers. Lenders lend borrowers a loan amount that borrowers agree to repay in a fixed period, along with additional interest. For instance, a jewellery store owner can borrow a Business Loan in Jaipur to open more stores in different cities of India. Since these loans have no end-use restrictions, the borrower may use the loan amount for various purposes, be it to rent stores, hire staff, set up the interiors, stock inventory, pay for labour and shipping, etc.
Advantages of Borrowing a Loan for Business
A Business Loan provides several benefits to the borrowers, including the following:
- Easy accessibility through various mediums
- Convenient application and approval procedures
- Fast cash injection
- No end-use restrictions
- Reasonable interest rates
- Flexible repayment terms according to the borrower’s convenience
- Total control over the business plans and execution
- No profit sharing
How Does a Business Loan Help Achieve Growth?
Here are a few tips for using a Business Loan effectively and achieving growth goals:
- Investing in the Essentials First: While many SME owners may feel tempted to spend their newly acquired finance on unnecessary luxuries, it is more important to invest in the essentials first. Purchasing the necessary equipment, securing enough inventory, and building a website are the basics to focus on.
- Planning a Budget: Some SMEs spend the acquired Business Loan quickly, leading to problems in the future. For instance, they may fall short of funds without eligibility for a new loan for business when an opportunity arises. Therefore, borrowers must put together a budget and be careful while tracking their regular expenses. Having a clear plan, cutting costs, and adding a buffer for unexpected situations are excellent ways to stay afloat and expand even during financially challenging times.
- Spreading the Word: Marketing is crucial for business promotion. Once target customers know about the business, they are likelier to approach the company and use its products or services. In the beginning, one must focus on cost-effective marketing actions with lasting impact, such as local events, content marketing, etc.
- Reinvesting Profits into the Business: Once the money starts coming in, it’s a good idea to repay the loan and reinvest disposable income into business growth. Business owners can use the profits to increase their marketing spend, expand operations, or hire new employees to meet demand.
While a loan for business can help a company expand its horizons, one must ensure they do not borrow more than they need. They must apply for an adequate amount to fund their business growth and stay focused on timely repayment.