Are you someone who wants to start or grow your small business but is concerned about the funding? Raising the funds for your business is not easy, capital has always been an issue for growing any business. Most of the money lenders are scared to invest in small businesses because very few businesses survive for more than five years.Just having a business idea is not enough to get a funding, you need to have a proper business strategy. You have to explain every aspect of your business model to the investors, then only they will be interested in your business.
Small business loans can be a great way to monetize your business. They contribute 40% of India’s GDP and provides a large number of employment opportunities. It is very important to support such businesses and help them grow. If there is a proper planning done, then the process can become less painful.
Let’s talk about the different types of small business loans that every owner should know before applying for the loan.
Micro-units Development and Refinance Agency (MUDRA) is an Indian Government organisation that provides funding to small businesses. The loans are given as follows:
The maximum loan one can get in this category is Rs 50,000/-
The maximum loan in this category is Rs 5,00,000/-
The maximum loan in this category is Rs 10,00,000/-
A term loan is a loan that has an unfixed interest rate and to be repaid within ten years usually. The time limit can extend in a few cases. Term loan can either be secured or unsecured loan.
Secured loan requires collateral which means if the owner fails to pay the loan then either his car or house or any entity can be sold. Whereas unsecured loan is the one that doesn’t involve any collateral.
Working Capital Loans
This type of loans are taken to run the daily operations of a company and not to buy any long term property for the business. The interest is not applied on the entire amount but on the money used for operations. It is comparatively easier for the companies to get this type of loan because there are chances of default.
Credit Guarantee Fund Scheme (CGS)
It is a scheme started by Government of India that provides loan against collateral free credits. Working capital loans upto Rs. 10 lakhs are given under this scheme. If the owner requires loan for more than 10 lakhs then the loan is provided against some collateral.
Another word for temporary funding is overdraft. Overdraft means withdrawing more amount of money from your bank account. But there is a certain limit of withdrawal, if the limit exceeds then very high rate of interest is applied on the money. It is a type of working capital loan.
Angel investors are the people who are experts in their own fields and are also very rich. They like to invest in businesses that they find appealing. This is one of the best ways to get small business loans. As the name says, these investors are literally angels for business owners who want funding for their ideas.
Every company needs money to start their business or to make it function properly. Business owners are often stressed about the funding. Knowing about these loan schemes will help them to find efficient ways to monetize their business.