How to Choose the Best Financing Options for Your Business?

Summary: Acquiring proper funding is imperative to run a business successfully. This article discusses the different ways in which you can do so and boost your business.

Finances are a huge part of running a business. It is an essential conversation under challenging circumstances due to sales being down, equipment replacement required, and seasonal changes in the business. As for the times when the business is doing well, entrepreneurs need more finances when thinking of expansion. 

Some financing options that are available to businesses are:

Furthermore, if you are wondering whether your business needs funding, you should ask yourself the following questions:

  • Do I really need funding?
  • If yes, what kind of funding will my company benefit most from?
  • How do I acquire the necessary finances and invest in my business?

Business loans help ensure that you get the necessary capital for every operation. Alongside the fundamental considerations such as the business loan interest rate, amount of funding provided, tenures, etc. The points mentioned above will help you streamline your thoughts before going for a financing option.  

Financing Options Available to Businesses 

Although there are several financing options, they fall into two main categories: 

  • Debt financing, which refers to borrowing money. You do not have to give up any ownership of the company. However, these loans come with stringent repayment periods and interests.
  • Equity financing, which entails selling a part of the business to investors. It does not involve any debt, but the business owner’s portion of income and control over the business decreases in some cases.

Understanding these options is crucial for sound decision-making. Additionally, both categories have various sub-categories. 

Loan based on Working Capital

Working capital business loans address short-term financial needs. They help business owners in a financial crunch, giving them additional funds to stabilise their cash flow. This form of financing strictly caters to working capital expenses such as office rent, wages, etc. 

Finding a good loan in this arena can be tricky as some lenders might give collateral-free loans and others might not. Similarly, the interest rates are also varying depending upon different lenders. These differences make it essential to entirely evaluate the need for this loan before going into it.

Small Business Loans

Small business loans can be in two forms, long-term or short-term loans. Under short term loans, borrowers can avail of short sanction periods, making them less restrictive than long-term loans. Meanwhile, a long-term loan’s repayment schedule is spread out over years. 

Long-term loans offer larger sums of capital than short term loans. Therefore, they are more difficult to secure, especially for new businesses, as it is challenging to prove a high repayment capacity. However, they offer the opportunity to break up the repayment of large loans into manageable pay-outs, and interest rates are mostly lower than short-term loans.

Line of Credit

A line of credit is different from loans because you only must pay interest on the amount you actually borrow. For instance, if the line of credit extended to a business by a financial institution is INR 5 lakhs, and they only borrow INR 2 lakhs, they will only have to pay the interest on the borrowed amount. In contrast, conventional loans require repayments in fixed instalments. With a line of credit, you only pay interest on the sum while the borrowing line is still open, which is set by the lender.

Getting proper funding for your business is essential, and Fullerton India has all the services you need to do just that. With our flexible repayment options and competitive interest rates, you get the necessary capital to scale your business up and turn a profit easily!

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