Benefits Of Small Business Loans

A business owner is constantly stumped by the constant supply of money required to fund their business activities. He needs money for various activities, including:

• fund working capital requirements, 
• purchase a new asset, 
• expand to a new territory, etc. 

Constant spending is necessary for the business to grow and remain competitive. After all, as a business owner, you need to move ahead of the competition! More importantly, you need to stay there for a long time. It is particularly true for new, small businesses at the nascent growth stage. These companies do not generate enough revenue at this business stage to fund this constant need. 

Advertising may make the owners believe that many financing and credit options are available. Generally, most of this sounds great but does not translate into an opportunity for small businesses with little or no assets and minuscule market share. Small business loans with no collateral requirement can serve this capital requirement for such businesses. 

This article will discuss how a small business loan financially benefits a small company or start-up.

Benefits of Small Business Loans:

Small business loans financially benefit a small company or start-up in numerous ways. Some such significant benefits are:

1. No Collateral: Numerous lenders offer small business loans without any collateral requirement. It is particularly favourable to small businesses as they don't have considerable assets to pledge. However large or small, the business will use these loan amounts to sustain its operations and grow. Lenders provide different types of credit facilities to small businesses depending on their needs. For instance, a business can get a working capital loan to meet its daily expenses. Or, it can take a term loan to expand its business. Accessing small business loans is vital to a small business that may cease functioning due to a lack of funds.

2. Easily Accessible: Small business loans do not require a lot of paperwork. Lenders ask for only the bare minimum for the business loan application process. Coupled with the ability to apply for online loans, it has made small business loans accessible. Besides this, lenders nowadays allow loan applicants to calculate their repayment tenure and liability at different amounts and interest rates even before the application process starts.

3. Flexible Repayment: Most lenders offer flexible repayment tenure to their business loan applicants. Not only does this fix the EMI payable to the applicant's ability and decrease default chances, but the business can also avail of this opportunity to plan out its future cash flows. For instance, let's assume you have taken out a business loan. Your business performed so well this month that your profit has grown significantly. You can pay a higher amount on the month's EMI by availing of the flexible repayment option. It will allow the business to clear its loan due amount faster than the usual loan tenure.

4. Tax Benefits: Under the Income Tax Act 1961, businesses can deduct their loan interest payments from the business's taxable profit or income. It is because interest payments made by a company are regarded as business expenses. However, this deduction does not apply to the principal loan amount and EMI payments. For example, if you have paid an interest of Rs. 5,000, and your total gross profit is Rs. 60,000. You have to pay tax on Rs. 55,000 (Gross Profit - Interest Paid) only. 

5. Business Growth: Businesses, tiny businesses, need constant cash inflows for operation and expansion. Since the loan amount provided can be used to meet any business expense. The company can strategically allocate these funds to increase its market share and profitability. Thus, small businesses can expand and grow their business using the fund provided by the lender.

6. Improve Credit Score: Small business loans can also use this opportunity to improve the business's credit score and reputation. To achieve this, companies must pay the monthly due amount or EMI on time. A high credit score is beneficial to a business. The company can leverage this high score to procure a higher loan amount at a lower interest rate in the future.

Conclusion: 

Small business loans can help a business grow its operations and profits if taken from the right lender who understands the need to offer paperless and digital options. Start-ups can, similarly, avail of start-up business loans to fund their initial stage business operations. In addition to the growth of the business, small business loans also provide numerous benefits like tax benefits, improvement in credit score, etc.