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If you are the owner of a newly started business, it can often be difficult to maintain a balance between your current business assets and your current liabilities. If this balance is upset, your business may end up in a working capital shortfall and you may struggle to keep up with current expenses. This is when choosing the right loan option can be your best bet.

Let’s see what options exist for getting working capital for your new business.

Commercial loan

  • One of the most popular and effective ways to increase the working capital of a new business is to obtain a business loan from a bank or financial institution.
  • A business loan is a form of loan agreement entered into between the lender and the business owner. According to the agreement, the lender agrees to give a specific sum of money to the owner of the business as long as the latter repays it, plus interest, according to a predetermined schedule.
  • The period for which the loan is used is known as the term and the regular amounts repaid by the borrower are called equivalent monthly payments or EMI.
  • While it is possible to take out a personal loan and use it for your business needs, it is often more beneficial to opt instead for a specialized loan designed to meet the needs of your specific business. For example, some business loans are intended to help you start your small business, others are intended specifically for the purchase of new equipment or machinery.
  • Unlike traditional business loans, new age business loans are designed to provide greater flexibility to the borrower, allowing him to make a wider choice of tenure.
  • However, these loans generally require a high credit score for the business and individual promoters. Depending on the creditworthiness of the business and the promoters as well as payment history, these loans could be secured by collateral such as personal property, stocks or other similar collateral.
  • Depending on whether these loans are secured or unsecured, under the current interest regime, the rates could vary between 8% and 18% per annum.

Business line of credit

  • A business line of credit is often described as a hybrid of regular loans and business credit cards.
  • This is a type of revolving loan offered by banks and financial institutions that gives you access to a specific amount of capital as a business owner.
  • You can use this capital as needed to meet the needs of your new business and then pay it off immediately or over a period of time. As soon as the offered capital is borrowed, the interest rate is applied to the amount.
  • A business line of credit also requires borrower approval from the lender, which is determined by their credit scores, in the same way that regular business loans and business credit cards work.
  • A business line of credit works the same way as a business loan in terms of credit rating, credit history, and collateral requirements.

Business credit cards

  • Business credit cards are great for separating business and personal expenses.
  • Also known as business credit cards, these forms of credit cards are specifically allocated to a business, not an individual, to meet the regular financial needs of that business.
  • They offer business owners the ability to easily access short-term working capital. These credit cards can be used to make a variety of purchases, payments, and reservations that may be required by the demands of business operations.
  • If the working capital required is not substantial, your business credit card can easily help you fill any financial gaps you may be having without having to spend time waiting for approval.
  • If you have a new small business, having a well-maintained business credit card can also help your business build credit over time and improve your chances of loan approval in the future.

Partner of a FinTech company

  • You might consider partnering with a company that specializes in exactly that aspect that you want to seek working capital for.
  • Fintech companies are financial institutions that use technologies such as cell phones and computers to provide financial services to clients. They can be any size, from a startup to a large organization.
  • They have specialized expertise, programs and platforms designed to inject liquidity into the financial ecosystem of the supply chain and help raise working capital for new businesses.
  • Compared to traditional means of delivering financial services, FinTech companies are often more technologically efficient.
  • Applying for a loan from a fintech partner is usually completely digital. One can apply directly on their websites or apps and expect a response within 48-72 hours.

Angel investors

  • Angel investors are high net worth individuals looking to provide financial assistance to new businesses and businesses. This financial assistance is often offered in exchange for a share of ownership in the business, usually in the form of equity.
  • Depending on the type of investment and participation they are looking for, angel investors can either provide one-time financial support or continue to invest and support the new business through various processes.
  • Angel investors are often on the lookout for innovative new business opportunities and often enjoy participating in various aspects of the companies in which they invest.
  • When approaching an angel investor, it’s best to have a clear and detailed pitch that illustrates why your business is essential and how you plan to grow it over the coming years.
  • There are several forums organized for angel investors to come together for investment opportunities. Some India centric angel investment organizations include Mumbai Angels, LetsVenture, Indian Angel Network, Venture Catalysts, among others.
  • You can submit your business plans or arguments directly to these forums through their websites.

Friends and family

  • Taking a loan from close friends and family can have obvious benefits.
  • If you get a loan from your loved ones, you are likely to receive it quickly and without hesitation. It also has the benefit of bypassing the credit approval process.
  • However, involving family members and friends in business can often be tricky and can easily get messy.
  • If you fail to repay the loan amount on time, relationships can become strained and friction can arise.
  • Taking out a loan from friends and family should ideally be viewed as a last resort option or handled with immense caution by setting clear terms and maintaining a professional approach to repayments.

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