For an SME, operational funding is perhaps the biggest challenge. Carrying on day to day business requires a significant amount of money. The business may have bagged a big order, but executing the order becomes a challenge when there is a dearth of funds. So what is the solution for this fund crunch? The working capital loan, a type of collateral free loan or a small business loan is the best option for bridging the gap in operational funding.
Here are various avenues for raising small business loans. Let us take a look at them and discuss their pros and cons:
Banking institutions have specific loan products meant for SMEs and are structured keeping in mind the unique requirements that SMEs have. The rate of interest is more or less uniform across the banks. The main drawback is that most business loans from banks require the borrowers to mortgage an asset. Moreover, bank loans may prove to be tedious as the paperwork is immense and the procedure is quite rigid. A long process of screening may make it unviable as working capital crunch and may lead to the temporary shutdown of operations if you want to raise money only through bank loans.
#2. Private Lenders:
Private lenders have been around and they tend to be a popular option for quick business loans. However, the very fact that they do not work within the framework and rules defined for financial institutions make them a dicey option. Many SMEs approach private lenders for small business loans for their flexibility and fast processing without realizing that the interest rates being charged are exorbitant, and so are the default and delay penalties. With private lenders, there is a big risk of falling into a debt trap.
This approach of raising quick business loans is unconventional and involves taking funds from the public at large. The borrower posts fund requirement on an online portal which could be a website catering to crowdfunding or a social platform. The result is that people who identify with the objective transfer a nominal amount to the account of the fundraiser. This way a sizeable fund gets collected. Problem with crowdfunding is that it is unreliable and does not have any rules and laws governing it. It also bears the risk of exposing your business idea to the world of strangers.
#4. Online Financing Platforms:
Online financing platforms such as FlexiLoans have become a preferred mode of raising unsecured business loans and not without a reason. Their loan processing is hassle free and quick owing to the use of technology. Even the loan terms and conditions are very flexible. These online money lenders offer a competitive rate of interest and have transparent terms and conditions. Furthermore, the entire process from application to approval can be carried out from the comfort of your home through laptop and phone.
Let your small business grow big without worrying about the fund crunch. It is quite apparent from the discussion above that online financing platforms seem to be the ideal option for availing unsecured business loans for SMEs.Also Read: HOW TO PROTECT YOURSELF FROM INFLATION