5 Common Challenges in Securing a Business Loan in India

This season of festivity is a good time for businesses to increase their sales and revenue. However, it will be necessary to have enough stock. From this perspective, the role of inventory management in meeting customer requirements without delays is critical. 

Whether you are a small retailer or an enormous enterprise, the potential to stock up ahead of time would be what makes or breaks your success in the festive season. You can prepare yourself better by boosting your inventory through business funding loans.

Here, we will see why inventory is important and how you can get a business loan to meet your inventory-related requirements.

The importance of inventory

Inventory is the backbone of any retail or product-based business. If you run out of stock, there is a high possibility that you will disappoint your customers, and also fail to maximise the sale. In the worst-case scenario, it can earn you a bad reputation. 

Poor inventory handling leads to stockouts, overstocking, or loss due to unsold products. Therefore, businesses must maintain the perfect stock balance. The festive season, especially, is a golden chance for you to improve your profits by increasing your sales.

Why stocking up is important during the festive season

Listed below are significant reasons establishing why you should stock up in advance.

Peak demand

Since consumers spend during festivals, the demand is high during the festival season. This also happens to be a good time for celebrating, and people will seek gifts, lights, and other novelties for the festive season. 

In case your firm is not well prepared for such increased demand, you may face problems in delivering orders on time and, worse, lose customers to other firms that are adequately prepared.

Higher profit margins

Festive sales usually have more than the average profit margin because most customers tend to open their purses and wallets without batting an eyelash. Stocking high-demand goods, therefore, gives the perfect opportunity to capitalise on the customer’s desire to spend; this, in turn, results in ample mileage in terms of profits. You can consider business financing to stock up during these times.

Promotional campaigns

The majority of businesses go all out during the festive season and attract customers with promotional offers and discounts. Without your optimum level of inventory, such campaigns may turn out to be nightmarish for you since you will not be able to fulfil the orders. Thus, you must prepare well in advance by keeping enough stock on hand to deliver all the promises you made through your promotional campaigns. 

Build brand loyalty

With adequate planning, a business ensures that customer needs are met during the festival seasons. Consequently, trust and loyalty evolve from a hassle-free buying experience, especially when everything they need is available. Consistent customer service encourages a cycle of repeated purchasing behaviour and fosters long-term loyalty.

How business loans help in inventory management

For most businesses, cash flow is always the biggest challenge in the festive season. The need to stock up a good amount of inventory means a significant upfront investment on the part of the business. Here is where business loans come to your rescue. Even if the size of your business is small, you will find many financing options to help with your inventory requirements.

Here is how a business loan can help boost your inventory during the festive season —

Access to required capital

Business working capital loans and other financing options immediately supply you with liquidity to buy inventory. Instead of living off existing cash reserves, you can fund purchases from the loan to get yourself stocked in full without depleting your cash flow. This is particularly helpful for small businesses since they don’t have the liquidity to make large purchases at once.

Bulk purchases with lesser costs

Getting a loan will enable businesses to purchase stock in bulk. Most suppliers give discounts for bulk purchases. You can lower the cost per unit of your business when selling these items during the festive season, thereby raising your profit margins.

Opportunity for product diversification

With more capital, a business has the potential for stock diversification. With business capital loans, you can upgrade your inventory with many new and trending items. The more diverse your product range, the higher your chance of increasing sales.

Conclusion

The festive season is always exciting as well as challenging for businesses. There are many opportunities to increase sales and revenue, but you would need an adequate amount of stock. This helps you to cater to customer demand and avoid any possibilities of stockouts, thereby maximising your profit margins. 

Business loans can help you to a great extent in this case. Apply for a business loan with TallyCapital by following simple steps.TallyCapital is a platform where you can quickly check your business loan eligibility and apply for financing. Use this to get quick cash and boost your inventory to make the most of the festive season. 

Every business owner needs capital to grow, expand, and innovate. However, whenever you go to a bank or financial institution, they first ask for collateral security, which can be a significant hindrance for many entrepreneurs. Fortunately, today, you can get a business loan without collateral easily and with just a few clicks.

Here are some easiest ways to get an MSME loan without any collateral security. You just need to check the right boxes, and you can easily get a collateral-free business loan.

What do you understand by a collateral-free business loan?

Most traditional lenders, like banks, ask for collateral, such as inventory, property, gold, or equipment, to minimise risk. However, most start-ups or small business owners do not have the liberty of easily providing collateral since they have limited assets.

Due to this challenge, they are compelled to depend on their savings, credit cards, or high-interest personal loans, which can hamper progress and escalate their financial risk. New business loans without security provide an easy solution, allowing business owners to access funds without putting their possessions at risk.

A collateral-free or unsecured commercial loan does not entail applicants keeping their assets, such as inventory, equipment, property, or other securities, to obtain funding. These loans are provided based on the character, capacity, cash flow, conditions, creditworthiness, and commercial performance of the applicant.

Eligibility requirements for a business loan without collateral

Firstly, you need to evaluate your eligibility for getting a collateral-free loan. The eligibility requirements vary according to lenders; however, some general requirements are the same, such as —

Credit score:

Your credit score replicates your credit history and your credit habits. The most popular credit rating agencies are CIBIL, Experian, and Crif High Mark. Most lenders require a good credit score. An ideal credit score is above 750. If your credit score is below 750, it does not mean that you will not be able to secure a loan; however, since it is riskier, the terms and conditions will vary, and you might be charged a higher rate of interest on the same loan.

Business age:

Most traditional lenders look for a minimum business age of one to two years. Having an operational business for 3 years is ideal before most lenders would be willing to sanction an unsecured business loan. However, many schemes and options are available for business owners and start-ups who have just begun their operations and need capital to expand their entrepreneurial ventures.

Revenue and annual turnover:

The revenue you generate during the whole financial year is your annual turnover. It plays a deciding factor in the quantum of loans sanctioned by banks and other financial institutions. It is crucial to have a consistent and steadily increasing turnover as well as profitability. The higher the revenue, the higher the quantum of loans, and vice versa.

You must confirm your business has a steady cash flow from operations to meet the repayment plan. Unsecured loans usually have higher interest rates compared to secured loans, starting from 10% and going up as high as 24% per annum.

KYC documents:

You need to have your credentials and documents ready for securing a business loan. You need to have the following documents to get your loan sanctioned —

• Personal Identification Documents, such as PAN Card, Aadhaar Card
• Address Proof, such as an Aadhaar Card or Electricity Bill
• Business Proof, such as UDYAM Aadhaar Registration
• Business Registration Documents such as GST Registration
• All the Licenses Required for Your Business
• Income Tax Returns
• Project Reports
• Bank Statements ( 6-12 months)
• Financial Statements (Profit & Loss, Balance Sheet)

All the lenders are under the purview of RBI to strictly follow the “Know Your Customer (KYC)” Norms that include establishing the identity of the individual as well as the business.

Choose the right lender for your MSME business collateral-free loan:

You can choose to apply for a loan from Banks, Non-Banking Financial Companies (NBFCs) and  Fintech Lenders that provide speedy access to funds without collateral.

Conclusion

Getting a business loan without collateral is a prudent choice for entrepreneurs who lack substantial assets but have robust business potential. Remember to always evaluate loan terms sensibly before making a decision. 

At TallyCapital, we identify that every business is unique, with its own set of challenges and opportunities. Thus, we are committed to providing you with modified business loans that cater to your specific needs. Our objective is to help you achieve your business goals, not to burden you with complicated loan structures.

Businesses need a constant flow of finances to keep their businesses up and running. In most cases, they seek the help of banks, financial institutions, individual money lenders and fintech companies (new players in the market) for short-term and long-term loans.

If you approach one of these lenders for finances, you should have a good credit history to be eligible for the loan amount you are looking for. Your credit history will determine if you can repay the loans. Lenders prefer borrowers with a good credit score, as this helps them stay away from defaulters.

If you are looking for funds to grow/expand your business, you should first work on improving your credit history. This will ease your access to loans at attractive rates. Here are some of the top 6 ways you can try to improve your creditworthiness.

1. Timely Payments

This might seem like a simple tip; however, this is one of the best ways to improve your business credit history. Set up reminders, maintain a direct debit system, or keep a record so that you don’t miss any payments.

When you default on your payments, it can impact your credit history to a great extent. These payments could be credit card payments, monthly loan repayments, or any other payment. When you fail to pay within the due date, banks may charge penalties or late fees. Thus, you may end up paying more than the actual due, creating a lot of debt for you in the bargain.

2. Avoid closure of old credit cards or accounts

Don’t close your old credit card or account, even if you have paid off the debt fully. The older your credit card/account, the more reliable you are. When lenders check your credit history at the time of sanctioning a loan, they will review your existing credit cards and account status.

When you cancel your credit card/ bank account, you will get rid of your credit history as well. Hence, these cannot be taken into account when calculating your credit score. If you want to manage your multiple cards/accounts efficiently, you can consider closing a recent card/account than an older one. Your old cards/accounts denote your stability and your potential to make payments on time.

3. Keep a close watch on your credit – business and personal

You should always keep your business and personal accounts separate for better financial management. This way, you can manage your credit efficiently. In most cases, lenders look into the personal financial details of borrowers when sanctioning a business loan. 

When you maintain both personal and official credits separately, you can track your financial habits and their impact on your credit balance. Paying business expenses from a designated account, using a professional business ID for paying taxes, etc. are some good habits you can follow to maintain a good business and personal credit score.

4. Keep your credit balances low

Your credit utilisation capacity has a big role in impacting your credit score. Ideally, your credit utilisation capacity should not exceed 30%. For example, if your business is eligible for an overdraft facility of Rs.10 lakhs, you should not withdraw more than 30% of the same, which is Rs.3 lakhs.

Even when your credit utilisation is within the 30% range, you should ensure you make the repayments on time, and try your best to close off the loan as quickly as possible. When your credit utilisation is more than 30%, it can adversely impact your credit history and creditworthiness. So, it is a good idea to keep your credit balances (both professional and personal) as low as possible.

5. Follow up with vendors to report payments

The strength of your business depends on the quality of your vendors/suppliers. Though these vendors don’t need to furnish a credit history mandatorily, you can request them to furnish one regularly. When lenders do a background check on you, they can go through these credit history reports and understand the high quality of the vendors you deal with daily. 

This gives your business a huge boost. Eventually, it helps to improve your credit history as well. You can request your vendors to furnish a proper credit history report from time to time to show you have made all the necessary payments on time.

6. Check your credit score regularly to watch out for errors, if any, and fix them

It is a good idea to check your business credit history at regular intervals. This way, you can review your financial data there to spot discrepancies, if any. If any of your payments have been missed out, wrongly recorded as late payment, or entry of incorrect mobile number and other details, you can fix them immediately and get your credit score sorted.

Bottom Line

In conclusion, maintaining a strong business credit score is crucial for securing better financing options and ensuring long-term growth. TallyCapital not only provides flexible business loans tailored to your needs but also empowers you to keep a close watch on your financial health. With the option to access your credit score report for free 11 times a year, you can stay informed and take proactive steps toward improving your creditworthiness. Take charge of your financial future with TallyCapital and unlock new possibilities for your business!

Irrespective of the size of your business, you will require a business loan to carry out different activities. A business loan will give you the much-needed capital to expand/grow your business, buy new machinery, invest in automation technologies and more.

Every business loan, whether short-term or long-term, carries an interest charge. Lenders charge interest as a mode of fee for offering funds to borrowers. While some factors may get you a reduced interest rate, you cannot get away with paying these charges.

Listed below are the details about interest rates and other charges that are usually associated with a business loan. Being aware of these charges will help you avoid unnecessary surprises later on.

Interest Rates

This is the most common charge you will come across when you apply for a business loan. The interest rates are a form of fee charged by the lender for providing you with funds. Your credit score, tenure of loan, amount of loan and other factors affect the interest rates charged by the borrowers.

Business loan interest rates can be anywhere between 9.75 and 30% per year, depending on the nature of the lender. Banks and traditional financial institutions may charge lower interest rates than individual, private money lenders and fintech companies. Interest rates may be charged monthly or yearly.

Processing Fees

As the name indicates, this refers to the fee charged by the lenders for processing or handling your loan application. Lenders charge this for all the steps they do right from the time of getting your loan application to the time of the final loan disbursal.

Processing fee is charged once at the time of loan disbursal. The lenders deduct this charge from the final approved loan amount and then credit the remaining amount to the borrower’s account. 

Different lenders charge different processing charges based on the credit status of the borrowers. Some charge around 2% of the loan amount as processing, while some may charge even 4 or 5% as processing charges.

Late Payment Charges

Borrowers have to pay their loan repayments within the specified due date every month. Failure to do so will attract late payment charges. Usually, when borrowers don’t have enough funds in their accounts, they tend to miss their loan repayments. Lenders charge high charges as late payment fees for the same.

Prepayment Fee

As a borrower, you may require a business loan to meet a particular requirement. You may have opted for a loan for a specified term. However, when your cash inflow starts to improve, you may want to pay off your loans before the scheduled time and stay debt-free.

However, please be informed that lenders may charge you an amount in the name of a prepayment fee or foreclosure fee. These prepayment fees may differ based on the type of loan and the nature of lenders. Some lenders may charge you a prepayment fee even if you close a part of your loan before the due date.

Online convenience charges

Today, most lenders have moved to online sources for loan application and disbursal processes. Once all the documentations are verified and approved, lenders usually give borrowers a unique ID and password. 

Hence, they charge an amount in the name of online convenience charges for these services. It is better to know the percentages of these charges before looking for online lenders for your financial requirements.

Documentation Fee

When applying for a business loan, borrowers have to submit the required documents to lenders. Lenders need to check these documents, get back to borrowers for corrections, if any, send them to further processes if everything is alright and handle the documents properly. 

They charge a documentation fee for these services. These charges are different for different types of lenders. The nature of the loan also plays a big role in calculating these charges. It can either be a fixed charge, or a percentage of the total loan amount.

We have discussed most of the major charges that are associated with business loans in the above sections. However, there could be some of these additional charges as well when you apply for business loans:

• Bounce charges – when the cheque issued by borrowers for loan repayments bounces for lack of funds or other reasons
• Stamp duty – based on the nature of loan, geographical jurisdictions and other factors.
• Cash collection charges – applicable when borrowers pay loan repayments in cash to the collection agents appointed by lenders
• Cash deposit charges – applicable when borrowers make loan repayments in the form of cash deposits in any branch
• PG facility charges – applicable when borrowers opt to make loan payments through specific payment gateways
• Annual maintenance charges – applicable for some flexi-loans and flexi-hybrid loans based on the terms and conditions of the lenders
• Switch fees – when borrowers want to switch from one lender to another; a certain percentage of the loan amount may be charged for the same
• Broken period interest charges – applicable as per lenders’ terms where the period between the loan disbursal and the first charge of EMI is more than 30 days or less than 30 days

Bottom Line

In conclusion, navigating through the various interest rates, fees, and charges of business loans can feel overwhelming, but understanding these aspects is crucial to making informed financial decisions. With TallyCapital, not only do you get access to tailored business loans that suit your needs, but our transparent approach ensures there are no hidden costs. Plus, with our expert guidance, we help you secure the most favorable terms, so you can focus on growing your business without the stress of complicated loan structures. Let TallyCapital be your partner in building a strong financial foundation for your business.

Access to credit has improved considerably over the last ten years. When you are looking for funds, your options are plenty. You can approach a bank, financial institutions, private lenders, or the plethora of fintech companies. 

Depending on various lending parameters, you will have to choose between two loan types: secured and unsecured loans. In this blog we will take a look at the difference between the two types of loans and situations where an unsecured might be a better option.   

Secured vs unsecured loans

To know more about the advantages of unsecured loans, you should first know the difference between secured and unsecured loans.

Secured Loans – The borrower has to provide collateral to the lender for this loan. Most traditional banks provide these, as these are less risky.

Unsecured Loans – The borrower doesn’t need collateral for these loans. As long as your credit history and your repaying capacity is good, you can qualify for these loans. Banks, financial institutions and other private lenders sanction these loans regularly. These loans have an element of risk attached to them. 

Unlike popular belief, unsecured loans offer a number of benefits to the borrower. We will cover the details in the sections below.

Top 5 advantages of unsecured loans

Why should you opt for an unsecured loan? Here are some of the benefits you can enjoy when you opt for unsecured loans. However, please note that most of these benefits will apply to you only if you are disciplined in your repayment cycles.

Simple formalities

One of the most attractive features of unsecured loans is that they are very easy to process due to the following reasons:

• No time wasted in checking the value and authenticity of collateral, as there is no collateral involved 
• Easy online application for business loans with very simple paperwork involved
• Very helpful in case you are looking for quick funds for an emergency (unforeseen medical expenses, business losses, etc.)

Higher loan amount

In the case of secured loans, your bank will only sanction up to 90% of the value of collateral you have submitted. For example, if you have submitted the documents of your property worth INR 1 crore to the bank, you will be given a maximum of INR 85–95 lacs, based on your financial health.

However, in the case of unsecured loans, there is no ceiling to the amount of loans that lenders can provide you. Just your credit history and repayment capacity can get you the entire loan amount you require. However, for huge loan amounts, the interest rates may be on the higher side. So, you might want to check applicable interest rates before deciding the exact loan amount.

Flexible repayment tenure

Unsecured loans are way more flexible than secured loans. Most lenders offer flexible repayment terms for their borrowers. For example, you can either extend or reduce your loan tenure based on your financial condition.

If your credit history is good, and if haven’t defaulted on any of your loan repayments, lenders can also offer you attractive rates of interest. You can negotiate for a better interest rate than others for your future loans, if you maintain a good financial record throughout your loan tenure.

Quick loan disbursal

Since the processing time is quick and the documentation required is minimal, lenders take very little time to disburse unsecured loans. Most of the leading banks and financial institutions disburse up to INR75lacs in just about 48 hours. This makes unsecured loans a good choice, especially if you are looking for quick cash to meet emergencies or critical expenses.

Fosters cordial relationships with lenders

When you repay your unsecured loans on time every single time, it can increase your credibility in the eyes of your lenders. Sometimes, you may require more money in addition to the current loan. In that case, this credibility can stand you in good stead. 

When you maintain a cordial relationship with your lenders, you can negotiate for good rates of interest for your additional loans. Being in the good books of your lenders is very important, as it can help you anytime you need money for contingencies in the future.

Conclusion

Unsecured loans are simple and easy to process. They don’t require any collateral and they are disbursed quickly. 

Here are several reasons why TallyCapital could be the best option for your business loan needs: 

Quick procedure

By taking advantage of the already established connection with Tally, the loan application procedure is considerably speeded up due to the decrease in wait time.

Collateral-free loans

We acknowledge the obstacles faced by young and new companies in raising capital, therefore the loans through our lending partners are collateral-free. 

Competitive interest rates

Through negotiations with our lending partners, we make sure that our interests remain one of the lowest in the market, thereby providing a more convenient and affordable financing structure for our customers.

Flexible funding options

Through our lending partners, we provide lending from ₹50,000 to ₹75 lakhs to businesses of all sizes which allows them to get funds necessary for growth and success.

Micro Small and Medium Enterprises (MSMEs) are the back of economies around the world. India is no exception, with 27% of the GDP contribution and 50% of total exports coming from MSMEs. However, these big numbers are only half the picture. According to Government data, only one-third of MSMEs make it beyond the first year. Failure to sustain business operation beyond the first year really comes down to a lack of funds. 

Small businesses face an uphill battle when it come to securing adequate working capital, expanding operations, buying new machinery, or purchasing raw materials to build inventory. Without an adequate source of funds, it’s near impossible to continue operations. While traditional loans are can be a good source of funds, banks and financial institutions hesitate to lend money to businesses without a strong history of credit.

This is where an MSME loan can be of huge help. The micro, small and medium enterprises loan provides much-needed financial help for small businesses to carry out operations without the fear of running out of money.

Top 6 benefits of MSME loans for small businesses

Easy to access

Adequate a timely funds are the lifeblood of MSMEs. When a small enterprise receives an order, they need to manufacture and build an inventory of products to meet their client’s requirement. This entire process requires funds to meet the delivery of products at every stage. An MSME loan provides easy access to finances that helps businesses plan and execute their business orders with ease. 

Thanks primarily to technological inclusions in the world of finance, most private lenders are able to disburse loans quickly. Small businesses need to provide minimal documentation along with an online form to receive their loan within 24 to 48 hours. Access to quick funds is one of the biggest benefits of an MSME loan.

Zero collateral required 

Another benefit that MSME loans offer businesses is the lack of collateral needed to acquire a loan. Small businesses often struggle to get off the ground and do no have access to property or assets to use as collateral. This makes it an ideal solution to keep their funds flowing without the need for collateral.   

Lenders primarily check credit history, business standing and overall financial health of small businesses. Once the numbers are satisfactory, an MSME loan can be acquired without the need for collateral.

Having full control of operations

One of the best things about taking out a loan, as opposed to getting outside investor/s, is that it gives business owners complete control over their business. As observed by the spate of hostile takeovers in recent times, handing over the keys of your business to an angel investor or venture capitalist is not an ideal situation. 

Outside influence can result in business owner’s losing control to outside parties that are primarily looking to make a quick buck. A loan circumvents this problem by allowing the business owner to have complete control at all times. 

Attractive rates of interest

MSME loans are meant for small businesses; therefore, their interest rates are affordable and competitive. These loans are also not too risky, because they don’t deal with high values. Therefore, you can benefit hugely from these loans, as you use almost the majority of the loan amount for the purpose intended.

Easy and customised repayment options

Some businesses need loans for a short tenure, as they are confident of repaying the same within that period. Some others, however, may need a longer tenure to repay their loans. Irrespective of your requirements, you can opt for MSME loans, as the lenders give you multiple repayment options to choose from.

Today, with many types of MSME lenders in the market (fintech companies, private lending companies, individual moneylenders, etc.), you can expect to get customised loans at reasonable interest rates and flexible repayment options from them.

Reduced taxable income

You can qualify for attractive tax benefits when you apply for MSME loans to grow/expand your small business. Every year, you are expected to file your taxes at a particular time. All you need to do is submit your MSME loan report along with your tax filing. 

The tax authorities will check the same and considerably reduce your taxable amount to the extent of the loan you have taken. This reduction in your taxable income will automatically result in a deduction in your tax liability as well.

Conclusion

With so many types of business loans and lenders available in the market, it may be a challenge to choose the one that is right for you. But TallyCapital enables you to sail through the business loan process successfully. With our streamlined lending process and strategic partnerships, this puts you in a position where you can easily access the financial support you need, while keeping you on what you do best – growing your business.

Businesses require a steady flow of funding to sustain day-to-day operations. This is particularly true for start-ups or corporations that are starting a new venture. While there are a plethora of financing options for businesses to gain funds, taking a business loan safeguards a businesses’ long term interests.

Listed below are the six different ways how business loans can enable growth and long-term prosperity. If you are considering taking a business loan, this blog also highlights recommendations towards the latter sections of this blog.

What are the uses of a business loan?

Here are six different use cases for which businesses can opt for loans from banks and financial institutions.

• Expanding your business

When you want to expand your business operations by way of opening new stores, launching new products, or other means, you need funds. In today’s competitive markets, you have to stay ahead of your competitors by grabbing the right opportunities as they come your way.

Thanks to a business loan, you don’t have to restrict your dreams due to lack of financial assistance. Using a business expansion loan, you can diversify your product lines, bring innovations to existing products, start operations in a new location, hire new employees and bring about other expansions to your business.

• Purchasing equipment and machinery

Speed and automation are the keywords in any business today. Reducing manual effort as much as possible and increasing productivity using state-of-the-art machinery can help businesses gain a strong foothold in their field.

Banks and financial institutions provide exclusive machinery loans to small businesses and entrepreneurs. You can make use of these loans to upgrade your existing machinery or invest in new sophisticated machinery to carry out your business more effectively than before.

• Managing working capital

Working capital is essential to carry out the day-to-day activities of a business. As a business owner, you need a constant flow of cash to pay the wages/salaries of your employees, take care of utility bills, and pay overhead charges. 

Working capital loans can help you in this case. Financial institutions offer short-term working capital loans at attractive rates to make them more accessible for businesses. This way, you needn’t reinvest your profits into the business to run your daily operations.

• Investing in marketing and advertising

Creating visibility and positioning your brand in your target audience’s minds are keys to your business’s success. While big businesses can afford to do this, small businesses and start-up entrepreneurs may need more funds for marketing and advertising campaigns.

This is where a business loan can help businesses seek the services of external marketing agencies or hire their own in-house marketing team to take care of the promotional activities online and offline.

• Stocking up on inventory

An organized inventory management system is the key to a business’s effectiveness. Your inventory needs to be updated and available to your customers when they order every time. 

Using a business loan, you can replenish your inventory at the right intervals, buy more inventory to cater to big orders, and invest in an effective inventory management system to automate all inventory-related tasks. This way, you can reduce manual efforts to a great extent. As a result, the chances of errors are reduced to nil, and your efficiency goes several notches higher than before.

• Research & development

Innovation and competitiveness are significant factors that define a business. What helps in this innovation? Businesses have to invest a lot in research & development to understand the pulse of their audiences and bring in the necessary innovations to their products to cater to the preferences of their customers.

Today, even the government encourages small businesses and entrepreneurs to spend more time in research & development. They do this by offering business loans exclusively for R&D projects. This way, businesses can come up with new products with innovative features and develop their overall efficiency.

What factors should businesses consider before taking a business loan

Today, there are quite a few players in the fintech industry offering secured and unsecured business loans at attractive rates to businesses of all sizes. If you are looking for a loan for your business, you should choose the right lending partner.

Here are a few factors to consider ensuring you don’t get exploited by unscrupulous lenders in the field:

• Know exactly why you need a business loan, so that you apply for the right amount and spend it for the right purpose.
• Ensure your financials (numbers on the income statement and balance sheet) are strong enough to help you get a proper, secured loan from authorised banks.
• Compare business loans from different lenders to understand the terms and interest rates offered before you choose the one that is right for you.

Conclusion

Business loans can help in the continuity and expansion of operations without further roadblocks. Thanks to the number of lenders in the market today, access to business loans has become far easier than before. However, businesses should exercise caution and analyse all the lenders well before opting for a loan. TallyCapital, available exclusively to TallyPrime customers, stands out as a prime choice for businesses seeking not just funds, but a partner in growth.

There are numerous reasons why a business would need money. Thankfully, with the increase in non-banking financial institutions, fintech companies and other lenders, businesses have numerous financing options to get the job done.

The access to funds has enabled many small and medium businesses to confidently run their businesses without fear of “running out”. These lenders provide business loans to fund day-to-day requirements, expansion, growth, innovation, and diversification of trajectory.

If you are a business owner looking for a loan to run, expand, or grow your operations, you can choose from one of these eight types of business loans:

Types of business loans available in India

Depending on the purpose of disbursement, business loans are known by different names. However, they can be broadly classified under these eight categories:

• Term loans

Term loans can be of short term, medium term, or long-term. Their tenure ranges from about a year to five years, depending on the terms of the lenders. Banks and financial institutions offer different types of term loans to businesses at a fixed interest rate for an agreed tenure. They are secured and affordable loans.

Businesses can use these term loans to buy new machinery, expand their business, diversify their products, buy raw materials, etc. They can use this for the overall development of their business.

• Cash credit

When you want quick cash to carry out daily operations, you can opt for cash credit. This is a simple type of working capital loan. The lenders fix different credit limits for borrowers based on their current liquidity and future orders from customers.

Borrowers can withdraw funds to the maximum of this credit limit, and can use this to cover their daily operations. This loan is quick, flexible and carries interest only for the amount withdrawn and not for the entire credit limit.

• Overdraft

This is almost similar to cash credit, with the only difference being banks involved here. Banks and financial institutions require collateral from you to allow you to withdraw funds in excess of what’s there in your bank account.

They charge you a reasonable interest rate for these excess withdrawals. Overdrafts are quick to access, and they are quite flexible as well. If you provide proper collateral, you may get an attractive interest rate for your overdraft loans.

• Letter of credit

When your business deals with international trade, you can make use of a Letter of Credit (LoC) to process your transactions smoothly. The LoC is a system where your bank or financial institution takes up the guarantee for your transactions, thereby assuring your suppliers/exporters of prompt payment.

A LoC lends credibility to international transactions and mitigates the risk involved. Letters of Credit are affordable and effective types of business loans.

• Business loan against property

This loan comes in handy, if you require funds for expansion. As the name indicates, this is a type of loan where banks and financial institutions provide loans against your collaterals. Collaterals are usually residential or commercial properties, in this case.

These are secured business loans. Therefore, they come with longer repayment tenures and reduced interest rates, making them a good choice of funds for you, especially if your requirement is huge.

• Gold loan

As the name suggests, banks and financial institutions provide you with loans against collateral, which is in the form of gold or bullion only. Gold loans are easier to access than business loans against property. Their disbursal process is quick and hassle-free, making them a good choice for small businesses looking for quick cash.

• Factoring

If you urgently need working capital to run your business’s day-to-day affairs, you can resort to factoring. Here, where you sell your invoices to a factor. Usually, banks or financial institutions play a factor role.

They buy your invoices and provide you with a loan that matches your future receivables. This way, you can use your idle invoices to increase your liquidity. Factors will then contact your customers and collect the outstanding payments from them.

• Unsecured business loan

If you don’t have any collateral for a secured business loan, you can opt for an unsecured business loan for quick funding. Lenders check your financial health and credit history before sanctioning a fixed loan amount for you to be repaid within a specific tenure.

However, due to their soaring interest rates, unsecured loans are a risky proposition. Also, many private lenders may come into play in these types of loans, making it a lot riskier for borrowers than in the case of secured bank loans.

Determining the right business loan for your needs

With so many types of business loans available at your disposal, how do you know which is the right fit for you? 

• Assessing your business needs and goals – Why do you need the loan? You have to have a clear answer to this question, as this will help you choose the right type of loan from the right lender.

• Evaluating loan terms and conditions – When checking for business loans from different lenders, you have to evaluate their repayment terms, interest rates, hidden costs (if any), and other terms & conditions in fine print. This will help to avoid unnecessary surprises later. You should know what you are getting into to be safe than sorry.

• Understanding interest rates and repayment options – Check with the lenders about their interest rates and repayment options clearly before getting a business loan from them. Check for the terms in case of defaults thoroughly, before opting for such loans.

What are the factors to consider when choosing a lender?

Today, you will find many types of lenders when opting for a business loan – banks, financial institutions, private lenders, online lenders, credit unions and more. How to choose the right lender? The three points to remember in this case are:

• Comparing interest rates and fees – Check all the fixed and variable interest rates, processing fees and other hidden costs of business loans charged by the lenders to choose the lender that charges you the least.
• Reputation and customer service of lenders – Always choose lenders that have been in the lending business for a long time. Check their reviews online and read customer testimonials to get borrowers’ feedback before selecting the right lender.
• Additional services and support offered—You should choose lenders who are available 24/7. They should also assign a representative exclusively for you to ensure you get a loan that is customised based on your needs.

Conclusion

With so many types of business loans and lenders available in the market, it may be a challenge to choose the one that is right for you. But TallyCapital enables you to sail through the business loan process successfully. With our streamlined lending process and strategic partnerships, this puts you in a position where you can easily access the financial support you need, while keeping you on what you do best – growing your business.

Getting timely financing is crucial for the success of any business. This is particularly true for MSMEs who rely on a steady flow of income to clear payments on time. So, how do businesses secure loans from banks or financial institutions? One of the primary tools used by lending institutions today to determine a businesses’ creditworthiness is their credit score. 

So, what is a credit score, and how would an individual or business know if they have the right score to secure a loan? This blog will answer all of the questions about the importance of a good credit score and how businesses can secure a business loan with ease.   

What does the credit score indicate about a business?

A business credit score is a number that indicates whether a company is a good candidate to receive a loan or become a business customer. Business credit scores are determined by credit scoring companies using a range of criteria, such as credit history, age and size, and legal issues.

Similar to how individuals are given a CIBIL Score between 300 and 900, companies are given a CIBIL Rank between 1 and 10, with Rank 1 being the best with a high likelihood of receiving funds and Rank 10 being the worst with little chance of credit approval. 

Businesses get scored from the information provided by lending banks and financial institutions. Factors like a business’s history of payment, credit usage, and financial health, among others, are assessed while generating a credit score. 

The following are some major advantages of having a high business credit score:

1. Determines the creditworthiness of a business

Establishing your business creditworthiness is critical for obtaining funding and cash for your company as well as for further expansions. Your credit score plays a major part in this process. Moreover, the business’s credit score affects the amount of funding you have access to, the terms and conditions of your loan, and the interest rates.

2. Speed up the borrowing process

Having a good business credit score makes it easier and less stressful to obtain financing. It also increases the likelihood that your loan will be approved quickly. Furthermore, it strengthens your application and establishes the credibility of the business in the eyes of the lender.

3. Higher loan approvals

Depending on your company’s needs, you might need to have access to a significant amount of credit. Having a high credit score empowers you to negotiate a larger loan amount and serves as evidence that you are a responsible borrower.

4. For lower interest rates

If your business credit score is strong, lenders will be more willing to offer you competitive interest rates. You can bargain for reduced interest rates by establishing yourself as a low-risk borrower.

5. Flexible loan tenure

If your company’s credit score is high enough, you may be able to work out a longer loan term and a flexible repayment plan that’s compatible with your cash flow.

How can businesses improve their credit score?

While there isn’t one way to raise your company credit score, you can take measures to increase your business credit score.

1. Check your credit report periodically

Periodically review your credit report and report any errors. There are platforms/portals that offer a free company credit score check. By providing a few simple company facts, you can receive your most recent credit score and comprehensive credit report in just a few minutes. 

Watch out for mistakes or inaccuracies. Your business’ rating may be impacted by even a little error, such as an incorrect mobile number. Make sure to report any errors or inconsistencies to the credit agency and have them corrected as soon as you see them on your credit report.

Take note of the following indications when you review your company credit report: 

• High credit utilisation 
• Many credit accounts, including loans, credit cards, lines of credit, OD, etc. 
• Bounced cheques 
• Defaults on loans 
• Negative cash flows 
• If you see any of these warning signs, you must act appropriately to raise your company’s credit score. 

2. Pay your bills on time

One of the simplest ways to raise your credit score is to make rent and utility payments on time to suppliers, lenders, and utility companies. You may have to shuffle your cash flow to beat the due dates, but getting ahead of your payments—even by one or two days—can raise your credit score.

To guarantee that you pay on time, consider the following advice:

• Organize your payables using a spreadsheet.
• For ongoing expenses like monthly debt repayment and utility bills, set up automated online payments.
• As soon as you receive an invoice, file it and make a note in your calendar to pay it on time.

3. Keep your credit usage ratio low

Your credit utilization ratio is the amount of credit utilized for a billing cycle. Credit reporting companies generally value lower credit usage ratios because they indicate that you are not using all of your available credit.

A good credit utilisation ratio is 30%, but an excellent ratio is around 10%. Assume you possess a business line of credit worth ₹200,000. In order to attain a 30% credit use ratio, you should spend a maximum of ₹60,000 during one payment cycle before paying off the entire amount.

What to do to reduce your credit utilisation ratio:

• Reduce your balances to a minimum. Paying off your bills on a regular basis decreases your credit usage ratio.
• Make small purchases throughout the month. To ensure your debt doesn’t grow too large, try making several small payments rather than just one large one.
• Raise the limit on your credit. Call your credit card company or credit issuer to ask for a higher limit. Your credit utilisation ratio falls when you raise your limit without also raising your balance.

4. Keep Your Old Business Credit Cards Active

Your credit history largely influences your credit score. A stable credit card or other loan accounts demonstrate consistency and indicate to vendors’ and suppliers’ confidence in your business. 

The older the credit account, the higher its impact on your credit score. When you cancel an old credit card, it erases your related credit history. Therefore, this history cannot be taken into account when determining your credit score. 

If you wish to eliminate a few of your business credit cards, you are advised to close the most recent ones to minimise the negative impact on your credit score.

Conclusion

Now that you know how to increase your business credit score, use the above tips to improve and maintain your business credit rating. In addition to providing access to new credit options, a good credit score also makes it easier for you to secure loans on more favourable terms.

You can also check your credit scores with TallyCapital for free. Some of the features of TallyCapital’s lending solutions are paperless documentation, instant approval, personalised advice, and hassle-free business loans. Tally ensures that your business gets the support it needs—fast and effectively. It does this by making the loan amount customizable, making procedures easy, and requiring no collateral.

There is no doubt that capital is one of the key things to survival in an almost unpredictable business world. A business loan can make a good weapon in your toolkit, necessary for eliminating problems and seizing chances to push your company more to success. This is regardless of whether you’re at the inception stage of your business journey or aiming to soar to new heights. Let’s review 5 reasons here why taking a business loan could be one of the most intelligent moves for your startup.

1. Kickstarting your venture

Starting your own business is an exciting journey, but it often requires a substantial amount of capital. From renting office space to buying initial stock or securing various licenses, the initial costs can be hefty. A business loan provides the necessary funding to cover these expenses, helping you set up a solid foundation for your business. This financial support allows you to focus on building and growing your business from day one.

2. Fueling business growth

Once your business is off the ground, the next step often involves expansion. Expanding operations can include acquiring new locations, hiring more people, or raising production capacity. In fact, these endeavors cannot move forward without money. A business loan puts in place the financial tools that can fuel different business growth strategies. 

3. Investing in equipment or inventory

Operational efficiency is one of the most important factors for a company’s success. It makes the difference between the winning and the losing companies. Investing in cutting-edge technology, which in turn improves the operations of the business along with upgrading old machinery, is a worthy investment. Nevertheless, such a kind of investment is also highly capital-intensive. A business loan can help you with such purchases all the while maintaining the level of cash reserves for a rainy day.

4. Covering unexpected expenses

It is possible no matter how well you plan for the future, you will encounter unforeseeable spending that can hinder your business flow. This could mean any extra expenditure like emergency repairs or unexpected legal fees. It is always helpful to have more money in hand from a business loan when time is that critical. It guarantees that you can quickly handle unexpected situations and keep your business operating efficiently by eliminating financial challenges.

5. Boosting Your Marketing Efforts 

In today’s competitive market, effective marketing is essential to stand out. Whether it’s through digital marketing campaigns, social media advertising, or traditional marketing methods, getting your brand in front of potential customers is key. However, marketing campaigns can be expensive. A business loan can provide the capital needed to fund these initiatives, allowing you to reach a wider audience and increase your market presence. 

Why choose TallyCapital for your business loan 

Like seeking a business loan, selecting the right lender becomes as important as the decision to be financed. TallyCapital, available exclusively to TallyPrime customers, stands out as a prime choice for businesses seeking not just funds, but a partner in growth. Here are several reasons why TallyCapital could be the best option for your business loan needs: 

Quick procedure 

By taking advantage of the already established connection with Tally, the loan application procedure is considerably speeded up due to the decrease in wait time.

Collateral-free loans

We acknowledge the obstacles faced by young and new companies in raising capital, therefore the loans through our lending partners are collateral-free.

Competitive interest rates

Through negotiations with our lending partners, we make sure that our interests remain one of the lowest in the market, thereby providing a more convenient and affordable financing structure for our customers.

Flexible funding options

Through our lending partners, we provide lending from ₹50,000 to ₹75 lakhs to businesses of all sizes which allows them to get funds necessary for growth and success. 

A business loan can be the solution for businesses looking to fund various activities like buying raw materials, meeting day-to-day expenses or paying utility bills. While applying for a loan is fairly straightforward, banks and financial institutions have an eligibility criterion for borrowers. 

Adequate financing is the lifeblood of MSMEs in India. However, research from the Ministry of Micro, Small and Medium Enterprises shows that around 70% of all businesses shut down after only the first year. Unfortunately, for many MSMEs, access to timely funds is a hugely limiting factor. 

In the following blog, we will look at the eligibility criteria and the documents required for the smooth disbursement of these loans.

Eligibility Criteria  

Most banks and financial institutions provide tailor-made business loans to eligible applicants. The amount disbursed depends on the nature and the size of the businesses. How can businesses qualify for these loans? To know more, read on. 

• Age factor

The borrower must be between the ages of 21 – 65 to be eligible for a business loan. While this may be generally the case, you should check with your lender about their specific age requirements set by them. 

• Legal registration of business

Businesses must be formally registered with the Government of India.  Types of registration can include individual, sole proprietorships, partnership firms, private companies, and others.

• Minimum business turnover per annum

Banks and financial institutions expect borrowers to have a minimum annual turnover of ₹25 lacs to qualify for a business loan. However, some banks may fix this limit at ₹40 lacs as well. Hence, it is important to study the eligibility criteria of the lenders thoroughly before approaching them for loans.

• Experience of borrowers

Borrowers should have at least two years of business experience in their current location to be eligible for a business loan. Some banks may consider the overall business experience of the borrowers (irrespective of the location). In some other cases, banks may require borrowers to have completed at least three years of operations in the current location

• Profitability Factor

A business should have generated profit for a minimum of 1 year to become eligible for business loans. Its financials should be strong and creditworthy enough to qualify for these loans.

• Income factor

All the earnings of borrowers should either originate from their businesses or their investments. Banks look closely at the source of income of borrowers before granting them loans for the day-to-day running of their businesses.

• Credit score

The CIBIL score or the creditworthiness score of a business owner should be 700 and above to qualify for a business loan. In some cases, banks/financial institutions also grant loans to borrowers who have a minimum credit score of 650.

• Repayment capacity

Credit score and the repayment capacity are two important factors that banks and financial institutions check about a borrower. Borrowers need to submit their tax returns, income statements, balance sheets, and other important business documents to prove their financial health and repayment capacity to the banks.

• Other factors

Banks also check the financial history of borrowers to know if there have been any defaulted payments in the past. Borrowers need to have a clean financial record to qualify for business loans. Also, if they are owners of any type of property (residential, commercial, warehouses, etc.), they stand a better chance of getting business loans.

Documents Required for Business Loans

Borrowers need to submit all these documents along with their business loan forms to process their loan applications.

• PAN Card (individuals, firms and companies)
• Valid ID Card (can be one of these – AADHAR card, passport, Voter’s ID, PAN card, driving license)
• Valid address proof (can be one of these – AADHAR card, passport, Voter’s ID, driving license)
• The last six months’ bank statement of the business
• Latest Income Tax Returns
• CA audited/certified copies of the Income Statement and Balance Sheet for the last two years
• Proof to show continuation of business (can be one of these – income tax returns, trade license, establishment certificate or sales tax certificate)
• Other important documents that are key to the nature of the business (declaration of  sole proprietorship, partnership deed, director-certified copies of Memorandum of Understanding and Articles of Association,  and the like)

Important note – These are the usual documents that are required to be submitted along with the application for a business loan. However, it is important for borrowers to check with their specific lenders if there are any additional documents required to ensure that their application doesn’t get rejected.

Bottom Line

A business loan can help businesses carry out their daily operations, buy raw materials and equipment, and plan for further business expansion. Hence, borrowers should ensure that they make full use of such loans by knowing the full details about eligibility and the documents required at the time of application.

Like seeking a business loan, selecting the right lender becomes as important as the decision to be financed. TallyCapital, available exclusively to TallyPrime customers, stands out as a prime choice for businesses seeking not just funds, but a partner in growth.

Here are several reasons why TallyCapital could be the best option for your business loan needs: 

Quick procedure

By taking advantage of the already established connection with Tally, the loan application procedure is considerably speeded up due to the decrease in wait time.

Collateral-free loans

We acknowledge the obstacles faced by young and new companies in raising capital, therefore the loans through our lending partners are collateral-free. 

Competitive interest rates

Through negotiations with our lending partners, we make sure that our interests remain one of the lowest in the market, thereby providing a more convenient and affordable financing structure for our customers.

Flexible funding options

Through our lending partners, we provide lending from ₹50,000 to ₹75 lakhs to businesses of all sizes which allows them to get funds necessary for growth and success.

Securing a business loan is essential for the growth and sustainability of businesses in the competitive Indian commerce landscape. However, various obstacles can make the loan application process challenging for business owners. Here, we discuss five common challenges that businesses face when seeking loans in India, along with strategies to overcome them effectively.

1. Lack of collateral

Many new or small businesses struggle because they lack sufficient assets to use as collateral. Collateral typically includes valuable items such as buildings, land, or expensive equipment that banks can hold as security for the loan. Without these assets, lenders may view the loan as high-risk, potentially leading to rejection of the application or imposition of high-interest rates.

2. Lengthy procedures

Applying and successfully obtaining business loan can include a lot of unnecessary steps and take long to complete. This elaborate procedure is a time taking process, usually comprising of thorough examination of the company’s creditworthiness, such as its financial statements along with its business plans and credit assessment which may take several weeks and even months to complete. During this period, the business operations might experience negative implications as the CEO and other owners spend more time navigating the loan process than on one’s business itself.

3. Unaffordable interest rates

The interest rates offered by lenders can be high, particularly for small to medium-sized enterprises as they seem risky to financial institutions. These rates determine the monthly repayment amounts, and if they are too high, it can strain the business’s finances. High interest rates could cause an extra burden in paying back the loan amount and in some cases might push a business beyond the point of no return.

4. Low credit score

Many small ventures in India have little credit limits as a result of their lack of knowledge in dealing with credits, the inconsistent activities on their records or they have had poor track records in handling loans in the past. The credit score is therefore a vital tool that banks rely on heavily when they are assessing the viability of giving credit or a loan. A low score can make it very difficult to secure a loan, as it suggests to lenders that the business may fail to meet repayment schedules.

5. Insufficient funds available

Businesses may find that even if they qualify for a loan, the amount approved by the lender may not be enough to meet their actual needs. This could occur if the lender is very cautious about risks or doesn’t fully comprehend the business’s operational requirements. When a business doesn’t receive the necessary funds, it may struggle to execute its plans effectively, resulting in slower growth.

How TallyCapital can assist

Recognizing these challenges, TallyCapital has developed a customized solution for our current Tally customers, facilitated through strategic partnerships with FlexiLoans and Kotak Mahindra Bank.

Key advantages of TallyCapital:

Quick procedure: By taking advantage of the already established connection with Tally, the loan application procedure is considerably speeded up due to the decrease in wait time.

No collateral required: We acknowledge the obstacles faced by young and new companies in raising capital, therefore the loans through our lending partners are collateral-free.

Competitive interest rates: Through negotiations with our lending partners, we make sure that our interests remain one of the lowest in the market, thereby providing a more convenient and affordable financing structure to our customers.

Access to the funds you need: TallyCapital understands the significance of receiving the right footing required by your business. Through our lending partners, we provide lending from ₹50,000 to ₹75 lakhs to businesses of all sizes which allows them to get funds necessary for growth and success.

Conclusion

It goes without saying that getting a business loan in India is not that easy, but TallyCapital enables you to sail through this process successfully. With our streamlined lending process and strategic partnerships, this puts you in a position where you can easily access the financial support you need, while keeping you on what you do best – growing your business.