Recent data indicates that medium, small and micro-scale industries account for around 37% of India’s GDP. For most MSMEs, the primary source of financing involves availing small business loans at affordable rates of interest.
Business owners can avail such forms of credit easily, which helps them substantially to improve the working capital.
These loans help to provide a much-needed boost to business growth and generate higher revenue.
However, some loans are more popular than others for their various benefits. Before moving on to the reasons, take a look at the types of business finance available for entrepreneurs.
Types of loans for businesses
Business loans can be broadly categorized into two types, mainly Flexi business loans and term loans.
Funding is considered the lifeline of a business, so the type of business loan which is beneficial to the firm is an essential factor to consider.
i) Term loans
Term loans are the traditional form of business funding, whereby a lump sum is offered at a fixed interest rate with repayment options scheduled for a particular tenor.
The tenor can be customized to avail financing assistance through short-term, intermediate-term, and long-term credits.
Moreover, term loans are unsecured, which means borrowers are not required to pledge any collateral.
Business owners are not required to put their assets at risk to avail such credits, thus ensuring lesser financial worries. This also helps to ease the documentation process, which in turn, results in faster loan disbursal.
ii) Flexi business loans
Flexi business loans are a new-age concept designed to meet the urgent financial requirements of enterprises. Financial institutions offer borrowers with a pre-approved loan limit, which is sanctioned after due processing. Borrowers can utilize a portion of the loan as per their business requirements.
Additionally, with Flexi Loans, borrowers can make use of the following features –
● Borrowers can withdraw funds only as much as they need, which remains within the credit limit offered by the financial institution.
● Borrowers can also avail of the part-prepayment facility and prepay a portion of the loan amount as per their convenience.
● The interest is levied only on the withdrawn amount and not on the entire sanctioned amount.
Why are Flexi business loans more popular than term loans?
As a borrower, if you are unsure about the number of funds you need to help grow your business and strengthen your working capital, it is advised to opt for a Flexi business loan compared to a term loan. The main reason behind this course of action is explained in the following pointers –
a) The facility of multiple withdrawals
With Flexi Loans, borrowers can withdraw funds multiple times from the sanctioned loan limit without having to go through fresh loan applications.
b) Funds are readily available
In any situation of financial emergency, Flexi Loans can help keep the business afloat as there is the availability of funds at all times. Borrowers can withdraw funds at any time they need within the pre-approved Flexi business loan limit as per their monetary requirements.
c) Easier repayments
Since borrowers are able to avail the loan amount as per their needs from a particular credit limit, repayment becomes easier in comparison to term loans.
d) Lesser payable interest
In the case of Flexi business loans, interest calculation differs a lot from term loans. Interest is accrued only on the number of funds withdrawn rather than the entire loan amount. Hence, EMIs are comparatively lower as well, thereby offering improved financial management.
e) Minimal documentation
Compared to term loans, Flexi Loans are pre-approved and sanctioned. Therefore, they do not require extensive documentation.
Moreover, financial institutions such as Bajaj Finserv bring pre-approved loan offers on Flexi business loans which help in availing them with least hassles.
Such loan offers are also applicable to numerous other financial products like personal loans and credit cards. Check your pre-approved loan offer by providing your name and phone number.
With the help of the above comparison, you can realize how business loans are financially beneficial than term loans. You can thus decide on a suitable loan option based on your funding requirements and proceed to apply.
