As you know that financial management is one of the key components of a successful business, hence, every business must meet all the requirements of the financial management. The most basic requirement of any business is Money which is generally referred to as Capital in terms of finance. Every business requires capital at different phases such as setting up a plant or project, increasing business operations, recovering from business loss and many others. Hence, it becomes important for all the entrepreneurs to utilise their assets in an effective manner at each phase of the business.
The fastest and most popular method of arranging capital to invest in your organisation is Business Loan. The business loan can be defined as the capital borrowed by an organisation from external bodies such as banks and other finance companies in order to implement the business strategy. HDFC, LIC housing are some examples of the finance companies. Such companies provide different financial services such as Mutual funds, Insurance, Payment banks, Stockbroking services and Investment banking. Nowadays, it has become a popular method of meeting all the requirement of the business operations. These financial services help businesses to fulfil all the requirements related to the financial management of the organisation.
The organisation needs to repay to the lenders from which they have borrowed capital along with the interest on the loan. In simple words, you can define interest as an amount paid for borrowing capital. One of a most important point while taking a loan is that every lender charge interest as per its own policies and procedures. However, most of the banks have a similar rate of interest. While taking a loan, the organisation needs to confirm whether the interest rate is fixed or variable. In fixed interest rate, the rate of interest remains same throughout the duration of the loan whereas, in variable interest rate, the rate of interest may change due to any lender-specific reason during the duration of the loan.
There are several factors which are considered by the lenders while giving a loan to the organisation such as:
- Detailed information about the organisation including its working history
- Amount of debt that the organisation has in the current period
- Nature of business that the organisation is doing
The business loans can be divided into two categories which are as follows:
- Secured loans: if the borrower does not repay the debt, the lender has the power or right to claim those assets which were pledged by the borrower at the time of taking debt. Such assets may include project, resources, vehicles and many others.
- Unsecured loans: The unsecured loans are completely opposite of secured loans. Here, the lender does not have the power to claim the borrower’s assets or resources, if the debt is not returned.
Now, let us discuss some of the key benefits of taking business loans which are described as follows:
- It helps in increasing the overall revenue of the organisation.
- It helps in enhancing the business’ credit by enabling the owner of the organisation to clear the previous unclear debts.
- It helps the organisation to increase the marketing of the products.
- It enables organisations to set up their new branches
- It also organisations to renovate their premises.
- It also helps in improving the brand image of the organisation.