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The Entrepreneur right Loans for you

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Being your own boss

The entrepreneur is a professional with a business of his or her own. This may be a service or a company or a manufacturing unit. The entrepreneur needs funding right from the time of startup to regular running of the business and mostly includes funding of working capital.

Money, Money, Money

Having a business is tough for the entrepreneur. Managing cash flow is the biggest challenge. Entrepreneurs need to manage their cash flow to keep the business running. While there is a need to invest in capital expenditure, there is also the running of day-to-day business including purchase of raw material and consumables for manufacturing. The entrepreneur needs to balance the turnover coming to the company with expenditure that not only brings in profit but allows the business to grow and machinery to be upgraded.
So which loans to choose
The entrepreneur needs to have a strong financial acumen and have a financial team that has a basketful of loans to apply and typically use financing schemes such as invoice financing, angel financing and even merchant advances. This constant switching between loans to avail of the lowest interest rates and the best facilities makes this financing activity challenging and intriguing. In fact, the key to success in business is juggling several loan options and to keep a constant watch on the bottom line.
In any case, lenders including NBFC (Non-banking financial corporations) will be keeping an keen eye on the credit rating of the entrepreneur and a strong credit rating score of at least 700 is needed to keep the loans flowing for smooth functioning of the business.

A Basketful of Money

Several type of loans are available for the entrepreneur. Loans from lenders and from the Government have been listed separately along with the salient features

Type of loan                                    Features
Start-up Loan For startup. Customer
Business line of Credit Used with a business checking account. Can be used to draw funds as and when needed. They are more like business credit cards. Interest is less if paid back early. Can be secured or unsecured.
Working Capital loan These are short term loans for entrepreneurs need for day to day expenses. They are usually paid back when the business receives payment from customers
Term loan Grace period 1-2 years, part loan can be converted to equity. Loan term can be upto 3 0years
Merchant Cash Advance Advances or loans taken by businesses against future expected sales from debit and credit cards
Invoice Financing Companies provide details of unpaid invoices of its products and obtain short term loans against. The loan, however, needs to be paid back and as when customers pay against the invoices.
Letter of Credit This is a form of credit where the receiver of an ordered consignment is paid upon submission of the details of the consignment and is done through a bank or a financial agency.
Temporary Funding a form of overdraft where the entrepreneur draws more money than deposits from current account. There is an agreed interest if prior information is given.
Angel Investment Usually financed by cash rich people who are experts and partly invest in start-ups for passion. This is one of the best business loans for entrepreneurs who just need to be in touch with rich patrons in their line of business who will

 

There are also several business loans for entrepreneurs from the Government of India. These have been listed below

  • The Pradhan Mantri Mudra (Micro unit Development and refinance Agency) yojana are loans given for business start-ups including setup of business, purchase of equipment and machinery and range from Rs 50000 to Rs 10 lakhs. These loans are provided for small manufacturing units, repair shops, artisans and even transporters.
  • There is also a MSME (micro small medium enterprises) loan which is given to young entrepreneurs for startup of a business or an enterprise. the amount of loan in a minimum of Rs 1 lakh and can go upto Rs 5 crores. It attracts an interest rate of 8.5%. There is a limit 3% of loan applications reserved for female entrepreneurs.
  • The SIDBI Make in India Soft loans for MSMEs (SMILE) is controlled and administered by the Small industries Development Bank of India (SIDBI). The minimum loan pay-out is Rs 25 lakhs and there is a grace period of the first three years in which nothing is needed to be repaid. The total loan repayment term is 30 years. The interest rate of 8.36% per annum is attractive for MSMEs.
  • The Credit Guarantee Fund Trust for micro and small enterprises (CGTMSE) provides working capital loans up to Rs 10 lakhs without any collateral. Credit upto Rs 5 crores is given but the business property needs to be mortgaged for getting this loan. Educational establishments, agricultural businesses, manufacturing and service MSMEs and self-help groups are eligible to apply for these loans.
  • Stand up India is a loan scheme for women entrepreneurs and entrepreneurs from the scheduled caste and tribes. Loans from Rs 10 lakhs to Rs 1 crore are disbursed under this scheme. 75% of the business project is given as loan and the interest is based on the marginal cost of lending rate (MCLR) + 3% + tenure premium.
  • Entrepreneurs can also get loans under the CLSS (Credit linked subsidy scheme) has specially been developed for entrepreneurs to develop and enhance their production units with the objective of boosting product Quality.

There are several online business loans and these lists with details will help entrepreneurs choose the best business loan in India.

 FAQs

  1. FAQs
    1. What is the business loan that is sanctioned in 59 minutes?

    This is the PSB loan from the Government of India. What is given in 59 minutes is not the loan but the information whether the applicant is eligible to receive the loan or not.

    1. Do investors of Angel financing charge interest for the funds they provide?

    Angel financing is provided by eminent businesspersons or philanthropists who have a passion for a particular product that a business is manufacturing. The patrons may not charge interest but may be interested in becoming a board member or be interested in part a part of the managing team. The terms need to be discussed while receiving funds from them.

    1. Can a business startup be financed by the Credit linked subsidy scheme? (CLSS)

    Though the CLSS is mainly for providing subsidised homes for economically weaker sections, loans on lower interest is also provided for business start-ups.

    1. Can a business term loan be foreclosed?

    Yes. A business loan can be foreclosed. But it is always necessary to ensure there is no loss in terms of paying interest and foreclosing charges.

    1. Can an entrepreneur use the letter of credit scheme for domestic business?

    Yes. An entrepreneur can tie up with a bank as well as a customer for receiving payment by letter of credit. The customer will pay the money to the bank which will forward the money to the entrepreneur when the entrepreneur is able to provide consignment details ready for shipment.

    1. Can a business take a merchant cash advance in excess of actual projected payment from sales?

    The merchant cash advance lender will usually not provide a loan advance in excess of sales. In emergencies, the merchant cash advance lender may ask for higher advance. But this is not recommended as the business begins to experience cash flow problems if it takes advances against its sales.

    1. Can working capital loans be drawn before the previous loan has been repaid?

    Not always. Lending NBFC’s prefer a working capital loan to be repaid before a new one is sanctioned. But the entrepreneur can use her or her good relations with the NBFC to take extra in the form of an overdraft and provide valid reasons such as delay of payment form customers.

    1. What is crowdfunding?

    Crowdfunding is a method of collecting funds from the public through websites such as kick starter and Indiegogo and is used by entrepreneurs to launch new products or a new scheme. Donors are usually paid back with gifts.

    1. Is it necessary for a woman entrepreneur applying for a stand up loan to be of the SC / ST category?

    It is not necessary for a woman entrepreneur to be of the SC/ ST category in order to apply for a stand up loan. Male entrepreneurs applying under this scheme, however, need to belong to the SC/ SC category.

    1. Is a business plan enough to apply for a business startup loan?

    No. A business incorporation certificate will also be required as a major criterion to be eligible for a business startup loan?

    1. What is the maximum term allowance for line of credit loans to entrepreneurs?

    Line of credit loans are strictly short term business loans and are required to be paid back within a year. Most banks begin to charge extra interest if the loan repayment term exceeds a year.

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