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Tuesday, April 13, 2021

Types of Loans a Business Owner can Tap into to Raise Fund

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Fund in a business is crucial for its expansion, purchasing raw materials, buying equipment, marketing expenses, paying taxes, paying salaries, and so on. For an individual running his/her own business, raising funds for business operations can be a challenge. To address such issues, the central government has launched certain flagship programs, functioning through the commercial banks, RRBs (Regional Rural Banks), NBFCs (Non-banking Financial Companies), Small Finance Banks, and so on. 

The government business loan schemes in India look to assist entrepreneurs in accumulating funds for their business. For example, the Pradhan Mantri MUDRA Loan, CLSS (Credit Linked Subsidy Scheme), CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) extend funds for a business.

Types of loans to raise business funding

Entrepreneurs mostly choose to avail loans over other funding options. The loan options for gathering funds are –

  • Government initiatives

The government has recently launched schemes to back start-ups and other small-scale enterprises. One such scheme is MUDRA loan, a component under the initiative PMMY. MUDRA stands for Micro Units Development and Refinance Agency Limited. The scheme was launched on 8th April 2015. As an entrepreneur, you can withdraw loans of up to Rs. 10 Lakh under MUDRA scheme to help your business raise finance.

There are 3 components under this scheme –

  • Shishu- Loan up to Rs. 50,000 to start-ups or small businesses.
  • Kishor- Loans up to Rs. 5 Lakh for expansion of a business enterprise.
  • Tarun- Loans up to Rs. 10 Lakh for eligible business houses.

Any MSME belonging either to the manufacturing sector or services sector can avail MUDRA loan.

  • Business loans

These are customised loans to provide your business the required impetus. Business loans do not demand any collateral from you. However, there are certain eligibility criteria you need to meet in terms of business tenor. You can avail a business loan up to Rs. 30 Lakh to raise funds.

  • Personal loans

A personal loan for self-employed could also fulfil the fund requirements of a small business. This too is a collateral-free loan availing option to meet the short-term needs of a self-employed individual to raise funds for his or her business. The eligibility criteria to apply for such loans include –

  • Individuals aged more than 22 years but less than 55 years.
  • Business having a 3-years existence.
  • Preceding year’s turnover.
  • Documents of IT returns for the preceding year.

Any amount up to Rs. 30 Lakh can be raised through a personal loan for self-employed.

  • Professional loan

Lenders offer custom-planned loans for professionals such as doctors and chartered accountants. The eligibility criteria can vary from one profession to the other. But, all such loans extended to professionals can also comply with the individual’s need to fund a business venture in their respective fields.

Fund raising is one of the most important tasks of an entrepreneur. With a fair list of loan options to select from, business owners can provide their company/enterprise with the much needed boost and achieve sustainable growth.

Also Read: Best Tax Saving Mutual Funds for 2019

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