Five years back, as a fresh graduate, I aspired to be a businessman and learnt a lot about the nitty-gritties of starting and running a business. So, I want to use this space to share my experience and learning for the benefit of all fresh graduates out there.
Funding is one of the most critical requirements to set up a business, and the business loan can be of much help in getting the essential capital required to start a new business or expand an existing one. Alike in any other loan, you have to repay the borrowed amount inclusive of the interest rate within a stipulated timeframe. There are different types of business loans – term loans, working capital loans, overdrafts, and start-up loans. So, before applying for a loan, you must spare some time to understand your business need in order to avail the right type of loan and the right amount of loan.
• Term loans: These types of business loans can be either for short or long term and are generally availed to either set up a new business or expand an existing one. The term for these loans vary from three years for a short term loan to 10-15 years for a long term.
• Working Capital Loans: Working capital keeps the business machine running and hence these loans are ideal if you require funds to meet the day-to-day financial requirements of your business.
• Overdrafts: This is a temporary loan where the account holder overdraws from his current account as per agreed terms and conditions with the lender. But, if the overdraft exceeds the limit then you have to pay higher rates of interest.
• Start-up loans: Aside the regular commercial loan, some banks, and non-banking financial companies have special loans designed to meet the requirements of start-up businesses. In order to avail this special loan, you have to present a compelling business idea and plan to the lender, along with some collateral against the loan. The lender will do a background check of your educational qualification, the feasibility of your business plan along with assessing your credit history, and assets and liabilities. Only when all the factors get ticked off, you will be sanctioned the loan.
Aside from business loans, professional loans are also available for self-employed professionals like Chartered Accountants, doctors, lawyers, designers etc. So, if you are a fresh graduate and want to start your boutique or a clinic then you have to provide a detailed plan of how you will utilise and repay the availed loan amount, along with collateral against the loan.
So, as a fresh graduate, make a sound business plan, assess your business requirement accurately, ensure that all the necessary paperwork is in place, and then apply for a business loan that best suits your need. This ground work will not only form a strong foundation for your business but will also enlist you among credible customers in the list of lenders, making it easy for you to avail a business loan now and in future.