Choosing the Best Loan for Your Business: A Guide for Entrepreneurs

For a businessman, getting the right loan is equally important as employing the right development strategy for the growth and sustainability of the business. If you’re in the midst of growing your company, investing in new equipment, or managing cash flow, a good type of financing can offer you the strength you need to win. Numerous forms of business loans are available; nonetheless, it is important to comprehend the different types and select the one that best fits your company’s requirements.

This blog will discuss the various loan options available to business owners, such as unsecured, MSME, and other business loans specifically designed for micro, small, and medium enterprises. Furthermore, we’ll focus on the criteria for obtaining these loans and all the features concerning them for better decision-making.

Types of loans for businessmen

Finding the right type of loan to finance your business is very important. Below are the most commonly used loans by entrepreneurs:

Unsecured business loans

Entrepreneurs who don’t have assets to offer as security greatly prefer unsecured business loans. These loans are typically easier to apply for and faster to process since they don’t require you to pledge your business or personal property as collateral. The funds can be utilised to finance working capital requirements, business expansion, or technology upgrades.

Eligibility: 

Eligibility criteria for unsecured loans may vary by lender but typically include:

• Credit score: A solid credit score (generally above 650) is required, as this demonstrates the borrower’s ability to repay the loan.
• Business history: Lenders often prefer businesses operating for at least 1–3 years with a track record of revenue generation.
• Revenue: The business should demonstrate strong financial performance with consistent revenue.
• Repayment capacity: Lenders will evaluate the business’s repayment ability based on cash flow and profitability. 

MSME business loans

MSMEs are considered key players in developing many economies in the world. For medium and small scale business owners, MSME business loan offers a great financing solution. These loans typically offer more competitive interest rates than unsecured loans and a flexible reimbursement mode.

MSME loans can often be used for a larger range of financing needs, from equipment purchases to covering working capital.

Eligibility:

• The business must qualify as an MSME per government definitions, which usually depend on factors like annual turnover and the number of employees.
• A strong credit profile and a proven track record of revenue are important for approval.
• The loan amount and repayment terms are often determined based on the size of the business and the purpose of the loan.

Business loans for small businesses

Small businesses often need financing to carry out their operations smoothly, expand their reach, and acquire equipment.  Many lenders offer loans tailored for small enterprises. Business loans for small businesses often have simplified application processes and quicker approval timelines. They also offer flexible repayment terms, which can be adjusted according to your company’s cash flow.

Eligibility:

Eligibility depends on factors like:

• Revenue: Lenders typically demand a minimum annual revenue to ensure the business has the financial stability to repay the loan.
• Business history: A stable business history (usually 1–3 years) is important to demonstrate that the business is capable of generating revenue.
• Credit score: A strong credit score is essential, as it shows lenders that the business is financially responsible.

How to choose the right loan for your business?

The key to choosing the right business loan depends on your unique financial needs, business model, and growth objectives. Here are some steps to help you navigate the process:

Evaluate your business needs

Before applying for any loan, evaluate what your business truly needs. Are you seeking funds to expand into a new market, purchase equipment, or manage day-to-day operations? The type of loan you need will depend on how you intend to use the funds. If you need quick working capital, an unsecured loan might be a good option. If you’re looking to expand your operations or invest in long-term projects, an MSME or small business loan might be more appropriate.

Check your eligibility

Each type of loan comes with specific eligibility criteria. Assess your business’s financial history, credit score, and annual revenue to ensure you meet the basic requirements. Lenders will also consider your industry and business’ age when determining eligibility.

Compare interest rates and repayment terms

The total cost of the loan depends greatly on interest rates. Look out for different lenders and compare the interest rates they offer. 

Consult a financial advisor

If you’re unsure about the best loan option for your business, it’s advisable to consult a financial advisor. The professional can help you analyse your options, assess your eligibility, and provide guidance on securing the most favourable loan terms.

Conclusion: How can TallyCapital help you secure the right business loan?

When it comes to securing business financing, TallyCapital is a trusted partner in guiding entrepreneurs through the loan application process. As a leading platform offering insightful financial solutions, we ensure you have access to the most relevant information and options to make informed decisions.

At TallyCapital, we understand the unique needs of MSMEs and entrepreneurs looking for unsecured business loans. With our expertise in financial planning and loan sourcing, we help businesses streamline their loan application process, making it easier to access the funds they need for growth and expansion.