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How to choose best option for Small Business Startup Loans

By : Guest on 23 October 2018 E-mail Comments     Print Print  Report Abuse

Can a start up get a loan? Can funding be made easily available for a start up to kick off the operations? Will it be a smooth sailing as far access to fund is concerned? And if it actually is how to weigh the options and chose the best one? These are some common questions which would come in mind when one is starting up a new venture and is looking at ways to access and raise funds since the entrepreneurial success is dependent upon this critical aspect. Following are a few tips to help you choose the right business loan for your start up.


What is the quantum of funds required?


The quantum of funds required for starting the operations would be one of the key parameters to decide the best option. If the quantum is small then you might just want to utilize your own funds rather than venturing out for external funding. After all any type of funding whether it is a project loan, mudra loan, angle funding or equity funding, it will put stress on you on the deliverable. A thorough budgeting on the requirement would be a good point to start.


When would the funds be required?


The funds may not be required at the time of inception. There may be a gestation period from when you start and when you would actually need the funds. The quantum of funds that you would assess as first step will also play an important role over here. Funds for first timer entrepenures are available from the government of India under Mudra scheme. Then there are structured loans with equated monthly instalments from various lending instututions that may be available depending upon the strength of your project. If you have smaller requirement then you can just avail the Mudra loan. Even smaller requirements can be fulfilled through hand loans from friends and relatives.


What is the purpose of borrowing?


Purpose of loan will also make a lot of impact on choosing the best option. Both traditional lenders and investors would evaluate the purpose of borrowing. How would the funds be utilized and how will it aid to start and grow the business.  If the purpose of loan is to do research and arrive at a conclusion, the start up may not even take off but if the same is for implementing the plan that has already been firmed up based on the research and market conditions, the same may be easier to get funding for.


Have you been into business for long?


If you have been running another successful business then it may become easier for you to secure a loan. The question that keep coming up is that whether a credit score check would be mandatory for the entrepreneur? The answer is yes. In case you wish to seek the loan as an individual owner of the entity and have already been in business for some time the same may be required.


Do you have a collateral to pledge?


Availability of collateral can also help you chose the option. In case the same is available you may be able to have access to funds at a lower cost than all other formats of credit. You can unlock the value of your collateral, ranging from gold to property, to raise funds against it. The loans extended with collateral normally are also given longer terms that may be of use since repayment would be in smaller fractions.


Should you opt for a personal loan?


You can even weigh the option of applying a regular personal loan if the quantum of requirement is low and you do have an earning history to back it up. For example you apply for Hdfc personal loan, you would need to produce your employment history, your current earnings and the bank statement for at least last 6 months apart from the regular KYC documents to be able to get the loan. In case you are able to establish above requirements and the loan amount available will be able to help you starting up, then go ahead.


Follow the above points to decide which option shall suite your start up needs.

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