Small business owners borrow around 600 Dollars each year. There are several reasons why entrepreneurs and business owners opt for small business loans.
They could be planning to expand their business or maybe simply trying to recover from accumulated losses. It could also be for the purpose of balancing the cash flows of the company for the time being.
Whatever the reason, it is obvious that small business relief provide much needed assistance to the business owners when they are in dire need.
In other words, small business loans save the day for them.
The article below will discuss a few ways through which small business loans become extremely beneficial for businesses.
Fast and Easy Availability of Funds
Usually, when you visit a scheduled bank or a financial institution for the purpose of securing a loan, you need to go through their pre-defined procedure.
This is a long process which takes up a lot of time. Moreover, you are also required to submit copies of documents that seem irrelevant.
Sometimes, the procedure becomes so lengthy that the prospective borrower thinks better of it and walks away.
There is no such problem with small business loans. Most banks and lending institutions have started facilitating their customers with online application forms. These forms are available on the organization’s website and can either be downloaded or filled manually after printing a copy.
Once you have submitted the online application form, the bank carries out its credit assessment based on the information you provided, and decides whether you are eligible for the loan.
If your loan is approved, the funds are disbursed, and immediately come at your disposal.
Small business loans offer a simple and fast procedure that allows you to get the funds in almost no time.
Easy and Convenient schedule of loan Repayment
The nature of small business loans is highly flexible. This is evident from the repayment terms and options built-in within these loans.
Banks are also business entities and thus, fully aware of the issues faced by other businesses with regard to their cash flows.
Keeping in view of these issues, banks would usually devise very easy and flexible repayment plans for small business loans.
In most cases, the personnel at the bank, studies the cash flow cycle of the borrower, and then develops a schedule in such a way that the repayments do not become a burden.
Depending on the financial conditions of the company at any given time, the borrower may increase or decrease the EMI.
Moreover, if a borrower is anticipating a big cash receipt on a certain date, they can choose to repay the loan through bullet payment.
Reasonable Rates of Interest
The interest rates charged by scheduled banks are usually lower than the ones charged by other lenders.
Since most Small Business Loans are geared towards public welfare, they have government’s backing and support. This means that their interest rates are even lower than usual loans.
For banks, the interest is the opportunity cost involved in parting with cash for a specified period of time. But, there are also certain factors that affect the bank’s interest rate calculation: the viability of the business model of the borrower. The personal credit rating and credentials of the owner / partners.
The phenomenon of commercial loan calculator is also applied to this mix, and then a rate is derived which is viable to the bank.
However, in case of a small business loan, the bank will also keep in mind the fact that a thriving business is good for the community as well as the entire economy. This may translate into a lower and affordable interest rate for the borrower.
Business Expansion and Growth
Finance is the key aspect of any successful business because it allows the entity not only to keep afloat but also to expand when the times are good.
If you are seeking to expand your business, you will need a strong and constant cash flow. You may be planning to open another outlet for your products, adding a new piece of equipment, or simply hire fresh resources — all of these actions require money.
A small business loan allows you to carry out these plans without actually affecting your business cash flows.
The bank or the financial institution will analyze your expansion plan. They may also schedule an interview with you to further understand your plans. If they are satisfied, they will approve the loan.
You can use this loan to expand your business as you deem fit. The repayments of the loan can be made from the cash flows of the new outlet or the increased sales, due to addition of new equipment.
This way, the loan does not become a burden.
No Equity Injection
If you seek a loan from venture capitalists, they would give this loan in the form of equity. This means that the lender will own a part of the equity of your business.
Technically, the lender will become a partner in your business. You will be obligated to share a percentage of the profit with him.
For many businessmen, this is not a preferred scenario since they do not want to share their profits with anyone.
Small business loans saves you from this scenario.
When seeking out a small business loan, the borrower has the choice of obtaining the kind of loan that suits him best.
There are several kinds of loans available that are spread over different tenures, and require repayments in their manners.
A borrower may switch from one kind of loan to another even before the loan is fully repaid.
This allows a lot of flexibility in cash flow management of the business even with the looming repayments each month.
This is an aspect of small business loans that is very beneficial for entities that are in their initial growing phase.
The percentage of business’s profits that is used for making repayments on loans is exempt from income tax.
No tax is required to be paid on the loan repayment amount. This means that your overall tax liability is decreased by the same amount, allowing you to have a breathing space while you are preparing your annual returns.
Peace of Mind
This is a very important benefit that can be derived from a small business loan. Business owners require peace of mind in order to carry out their operational activities.
With the help of small business loans, the owner can fulfill their monetary obligations even when their cash flows are weak. They know that they will have ample cash whenever they require it for replenishing their inventory or make immediate payments to vendors.
The Final Word
There are many benefits of small business loans. Some of them have been stated above, but there are many that can be reaped by entrepreneurs and business owners in order to run their businesses smoothly.