Domestic businesses absorbed between Rs. 12.8 lakh crore, and Rs. 15.1 lakh crore credit in the four years ending FY17, as per the Reserve Bank Of India (RBI).
In FY17, the lending from the non-bank sources, constituted 65% of the whole credit given to the businesses. Non-banking financial institutes (NBFCs), and housing finance companies gave Rs. 2.59 lakh crore in credit to the businesses.
The major chunk of the bank credit is mopped up by the large businesses. Micro, Small, and Medium Enterprises (MSMEs) find easy access to the Business Loans from NBFCs.
Bajaj Finserv provides collateral free loans to businesses for meeting their various business needs.
What Are The Common Reasons For Which Businesses Seek Funding?
Most business financing requirements can be broadly categorized into working capital and asset management. However, there could be other needs as well.
1. Working Capital Financing
Businesses often require finance for the smooth daily operations. Mismatch between the project/order payments, and ever surging business costs leave the companies scouting for funds. The working capital needs include, though are not limited to:
- Employee salaries
- Inventory purchase
- Supply chain management
- Utility bills
- Running costs for marketing and research
- Others
While larger requirement for inventory due to increase in projects needs more immediate funds, a slump in sales might make it difficult to finance the daily costs. Working capital loan helps to keep the business running, during both the highs and the lows.
2. Asset Financing
The major long-term assets of any business comprise the premises and the equipment. These include the machinery which is directly involved in the production or the service rendering as well as:
- Hardware and software for security solutions, etc.
- IoT solutions
- Costs for networking solutions and connectivity
- Hardware and software for GPS tracking
- Vehicles for delivery and others
Marketing and research costs can also vary. There are quarterly and monthly marketing budgets, but mass promotion may require extra funds. The market research or monitoring (for example drones) tools can be a long-term asset for the company.
3. Earn A Good Credit Rating
Most businesses opt for business finance, to earn a good credit score. Credit score is an important consideration, to get the business loan approved. Credit score highlights the company’s history on loan repayments. Businesses avail and pay off the business loan to build a good credit score.
Overdrawing from bank accounts, bounced checks, multiple credit lines are few of the red flags that companies should avoid.
4. Save Cash Flow
Instead of using the available cash, most businesses might prefer to take a business loan for their asset financing. This helps them save cash for other daily operations. Lenders also gauge the liquidity ratio before approving the loans.
The current ratio and quick ratio of more than 1 reflects on the soundness of the business.
Business loans help to leverage all the costs of the company. It can be availed without collateral. This does away with the need for asset valuation for pledging a guarantee.
Also Read: How To Secure Finance For Your Business?
