Purpose or Reasons for Business Loan in India

Every businessmen in India whether big or small are always in need of funding or capital in order to expand its business or for meeting its working capital requirement.  The loans which are taken for purpose of business are called as Business loan.

Business loan in India are major funding products of all the banks and financial institutions besides home loan.

Reasons for getting Business loan from Banks

Some of the reasons for which business loan from banks are taken in India are as mentioned below:

  • Business loan for new business set up

When a businessman wants to set up new business and have good business idea and business plan, He can avail business loan from banks and financial institutions. However, He would be required to convince the banker that business idea is robust and capable of generating good profits in future through which loan may be repaid.

  • Business loan for expansion of existing business

Businessmen can also apply for business loan in India for expansion of existing business like for launching new product line, starting new department, adding new line of business etc. Further, since track record of profitability is available in case of existing business, such loans are easier to obtain.

  • Business loan for purchasing new plant and machinery or other assets

Due to technological advancement, old machinery becomes obsolete with time and there is requirement to purchase new machinery. Accordingly, business loan may be taken for such purchase.

  • Business loan for meeting working capital requirement and managing cash flow

Often businessmen face shortage of funds due to delayed recovery of credit from customers, increase in operating cycles, slump in market etc due to which there is liquidity crisis for meeting day to day expenses like payment of utility bills, salaries, overheads etc. To overcome same, they can take business loan.

  • Business loan for repayment of loan already taken

In a situation when businessmen have multiple small loans, they may take higher business loan amount and repay smaller loans so that He may avoid heavy interest.

  • Business loan for running a seasonal business

In case of seasonal business there is always liquidity crisis since demand picks up only at peak season and it may be difficult to meet orders at peak season due to shortage of funds. Accordingly, businessmen may look for business loan option to meet the excess demand and later on can repay the loan from profits earned during peak period.

  • Business loan for wiping out losses

Sometimes there might be continuous losses in business and businessmen wants to turnaround the business with better management and revised business plan. For same, He might require funds and look for option of business loan, however it will be challenge to convince banker to fund a loss making business.

Thus, it may be seen from above that there may be multiple reasons for any businessmen to go for business loan in India. However, success rate depends upon proper business plan, business idea and other conditions including proper documentation available.

Author: Anil Agrawal
EZYBIZ India Consulting LLP, New Delhi. The firm is business and tax consultancy firm providing consultancy in Taxation, Regulatory, Transfer pricing, Valuation, Corporate funding and Business set up matters. He may be reached at 9899217778 or anil@ezybizindia.in.