Personal Loan
Personal loans are by far one of the most popular financial instruments used by many entrepreneurs to fill their short term financial requirements. There can be a limit to the amount an entrepreneur can avail as personal loan. Also it is the basic nature of banks to watch entrepreneurs with a suspecting eye. High interest rates are another reason why personal loans are a turn off for entrepreneurs.
Considering all these, banks are offering a number of varied personal loan products for easy availability of funds for entrepreneurs. Such products usually have high liquidity and ensure that businessmen including first time entrepreneurs can manage them to raise finances much more swiftly than ever before.
Term Loans:
Term loans are a popular choice used by a wide range of entrepreneurs to cater their need for money for business expansion. Usually term loans are offered for acquisition of machinery and fixed assets as well as project expansions. The biggest advantage of opting for term loans for entrepreneurs is that they give the businessmen an option to choose between various loan types. Term loans range from short term, intermediate term and long term loans. Depending on the individual requirement and financial position, an entrepreneur can avail the loan as per his or her choice.
The maximum tenure for a short term loans is fixed at 3 years. Term loans can be availed with or without collateral. Property, business premise or the acquired machinery can all be offered as collateral security with the bank. Various banks are inclined at giving term loans without collateral to entrepreneurs with a sound financial record. There is a slight variation of interest rates depending on whether it is secured or unsecured and the duration of the same.
Overdrafts or Cash Credit/ Working Capital Loans:
Overdrafts or funded cash credit limits is another useful way to raise money by entrepreneurs. Overdraft facility allows businessmen to draw more money from their current account within the limits of a prior agreement. The interest rate for the over drew money as credit is charged at a predetermined and agreed upon rate. In case of late payment, the interest rate is usually hiked. Overdraft facility acts as an ideal source for temporary funding without getting into the complexities of EMIs like personal loan and term loan instruments.
Letter of Credit:
Letter of credit is a non fund facility useful for entrepreneurs dealing in foreign trade and exports. Letter of credit offers the businessmen to use the bank’s own credit worth to be used as a facility to trade in the international market. There are always three parties that are linked to a particular letter of credit. This includes the issuing bank of whom the applicant is a client, the advising bank for which the beneficiary is a client and the final beneficiary of the money.
Bill Discounting:
Bill discounting process allows entrepreneurs to receive cash on large purchase or credit sales after providing authentic purchase documents. Bill discounting provides another good option for temporary funding by allowing businessmen to get instant cash. In this day and age of credit sales, bill discounting is a popular financial instrument used by a wide range of entrepreneurs.
New Banking Credit Solutions for Entrepreneurs:
Banks on their part have now come up with various innovative facilities offering credit facilities to entrepreneurs in order to boost the SME sector. This includes extending its overdraft facility to small business and issuing ready made industry centric loans for businessmen to reach both short term and long term financial needs.
- Credit surrogates: The rise of credit surrogates is one such unique financial tool that allows banks to offer lending support to small business owners. Credit surrogates do not necessarily follow all norms of credit thereby giving a sense of confidence to the lender. Pre approved loan plans are also being developed by various banks as part of the credit surrogate process.
- Tailor Made Loans for Specific Business Owners: Depending on the type of business or profession for the entrepreneur and self employed individual, banks have now come up with professional loans. Transporters, construction, apparels, gems and jewelry are some of the main sectors under which banks offer ready made loan facilities to their clients.
- Popular Loan Options: Entrepreneurs have a wide range of financial instruments to choose from when it comes to raising money for business expansion or day to day transactions. Personal loans continue to be a popular financial instrument used by a wide range of entrepreneurs to attain their financial goals successfully.
Here’s a quick check of the points we discussed above:
| Product | Bank | Tenure | Interest Rate | Collateral or Non collateral | Best purpose | Conditions (if any) |
| Office Equipment Loan | ICICI Bank | 12-36 Months | hypothecation basis | Non collateral | Limited for expanding office equipment | minimum amount of Rs 30,000 |
| Home Equity Loans | GE Money | 12 % | Non collateral | For small business borrowers | ||
| Factoring Services | HSBC | NA | 8-10% | Non collateral | Same day payment after submission of invoice | Pay interest only on the funds utilized |
| Quick Loans | Citibank | 12-36 months | 12% | Non Collateral | For short- term fund requirements | |
| Entrepreneur Loan | OBC | Up to 10 years | 12-14% | up to Rs 5 lakh without collateral | Working Capital Requirements |
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