A GST-registered enterprise can get a GST loan against its valid GST registration certificate and GST returns.
8 Benefits of a Business Loan that make it an attractive choice for Business owners
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The word ‘loan’ in general has a stigma attached to it. Yet, upon further contemplation, one would realise that our perception about loans is often unfounded. Business loans suffer from the same fate.
However, there are several benefits of a business loan you may not have considered earlier that make it not only an attractive means for financing, but an apposite way to fulfill your business aspirations. Let us look at some Benefits of a Business Loan that may not have crossed your mind.
Benefits of a Business Loan
Business Loans usually are offered as credit products with different facets, customised to the need of the borrower. Thus, the benefits depend upon the specific credit instrument being offered.
However, the following features are a few among many Benefits of a Business Loan that are applicable to business loans in general-
1. Tax benefits
A business loan might have considerable tax benefits for you. The interest paid on a loan is tax deductible. Since the interest paid on loan is a revenue expenditure for a company, it is deducted from the income for the calculation of its profits. This decreases the tax liability of the company which leads to considerable savings over the years.
A business loan thus functions not only as a financing instrument, but also as a tax-saving device.
Also read: 5 Business Loan Tax Benefits
2. Cheaper than raising capital through other ways
The capital raised through a business loan is quite cheap when reckoned against its alternatives, especially equity financing. The interest rate paid on a loan is lesser than the profit shared with shareholders when one takes into account that equity dilution is an irrevocable process and gives the shareholders the entitlement to profits of the company till they hold the stake in the company.
The interest payments on business loan on the other hand stops upon the end of the tenure of the loan.
Also Read: Secured vs Unsecured Business Loan: Know Differences [2024]
3. Real interest rate may be less
The real interest rate on a business loan may be less than it seems considering the fact that the value of money decreases with time due to inflation. Thus, consistent inflation as encountered in growing economies make business loans an attractive tool to finance the long-term needs of a business.
As the currency depreciates in an inflationary economy, the interest rate paid on business loans is partly offset by the inflationary pressure of the economy.
Compare Business Loan Interest Rates with different banks/ NBFCs
4. Accessible and easy process
The process to get a business loan is quicker and more accessible than other means of raising capital. With several lenders digitalising their operations, it may now take only a few hours to get a business loan. With the RBI allowing banks to open Digital Banking Units, the process to avail loans is only going to get easier and faster.
Apart from the digitalisation of banking operations, the RBI has also allowed co-lending and on-lending to make loans more accessible to enterprises hitherto out of the banking network.
5. Versatile
A business loan could be taken for long-term as well as short-term needs. Thus, business loans not only provide the resources for expansion, but also allow a business to function smoothly by providing the requisite working capital.
The lack of working capital can at times bring businesses to a halt, not only hampering their profitability but a possible closure. A working capital business loan addresses these problems by providing various products like a Credit Line, Invoice Financing, Call Loans, etc.
6. No interference in business operations
The relationship of a business with its lenders is that of a debtor-creditor and does not allow the lenders to influence the operations of a business. This benefit, unique to business loans is missing in capital raised through the issuance of shares. The dynamics of a creditor-debtor relationship ensures that the management of the company is insulated from the lender’s interferences and can function efficiently.
7. You remain the Owner
A business loan does not alter the ownership structure of an organisation. This may not be the case when you try to get funding for your enterprise through crowdfunding, IPO, Venture Capitalist funds, or incubators.
This allows you to enjoy the fruits of your labour without having to trade it off for your financial requirements, which also makes it probably the most important among the several benefits of a business loan.
8. Helps in improving Credit Score
Regular repayment of a loan is a component used for the calculation of the credit score. A secured loan of long-term ensures a low EMI amount that allows the borrower to repay the loan easily.
A business loan can thus help you increase your creditworthiness. This would allow you to get loans at better interest rates in future.
Also Read: Business Loan Eligibility Criteria in India
Check For Other Loan Options-
Final Words: Are Business Loans the correct choice?
A business loan could come handy whether you have an immediate cash requirement, or plan upon expanding your business. The versatility offered by business loans through various credit instruments quite easily caters to the different needs of a business throughout its lifecycle without altering its shareholding pattern. The benefits of a business loan are thus not just limited to the advantages mentioned above, but can depend upon the specific credit instrument being offered to the borrower.
A business loan could be opted for, whether it is a long-term requirement or short-term. For short-term requirements, the accessibility and various customised instruments make business loans attractive. For long-term requirements, the real interest rate of loans make it a cheaper way to finance the needs of a business.
FAQs
1. What are the benefits of business loans?
Business loans have several benefits, some of which include tax benefits, no change in ownership, versatility in usage, and no interference in the operations of the enterprise.
2. What is the purpose of a business loan?
A business loan can be taken for the following purposes-
- Business Expansion
- Purchase Machinery
- Renovation
- Research and Development
- Pay salaries/wages of staff.
- Any other sundry expenditure or business investment.
3. What is the use of loans in business?
Loans in business could finance various requirements of an enterprise. Be it for purchasing raw materials, paying for staff salaries, business expansion, or starting a new venture. Business loans are customised to address the specific needs of businesses.
4. Does a business loan save tax?
Yes, a business loan saves tax since the interest paid on a business loan is tax-deductible.
5. Who is eligible for a GST loan?
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