If you are a small trader, it would be a good idea to get business loan to expand your business or grow your Working Capital. For small traders, there are a lot of available options to raise funds for their business. You can take government grant, take personal loan from an individual or can apply for a business loan from a bank or a non-bank financial institution. With a plethora of options in front of you, it is obvious that you might have confusion about which entity to approach. Follow our guide to get a clarity on how to apply for small business loans and where to apply.

Small Traders can apply for a bank loan

For obtaining a small business loan from a bank in India, you might have a difficult time. Banks will look into your status of employment, your educational level and what collateral you can provide to the bank in lieu of your bank loan.

small trader
source: cnbc

For getting a bank loan, you need to first visit the various banks to get an idea of what interest rates are charged by them. Some banks charge more interest on business loans for small traders whereas other banks have different departments to provide small traders loan. Before finalizing a particular bank, check what each bank has to offer. You can even check the guidelines of these banks online. Now most of the banks have started their online facility; it has made it easier and quicker to apply for small trader loan online.

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You must also know that as a small trader, being a first time loan applicant would make it harder for you to acquire a business loan as banks often do a fair check of a business’s record of profits and losses before issuing a loan. With the risk factor involved in a business, a bank would definitely want to keep a track of your business and do an accurate check to minimize their losses.

Apply for MSME Loan

Apart from the above mentioned requisites for attaining a business loan from a bank, a small trader’s request for business loan can also be rejected by a bank on the basis of their geographical location.  With 68.86 per cent of India’s population living in rural areas, the nearest bank to them is miles away. Receiving a loan becomes tougher when your business venture is many kilometers away from the bank.

The small traders’ certification form from Small Traders Association could increase your chances of getting a bank loan.

You must know that taking a bank loan could be expensive with GST being charged on the interest rate. Therefore, before taking a business loan from a bank, thoroughly read small traders GST guidelines released by the government.

Small traders can make use of government grants

An excellent alternative for those whose loan application has been rejected by the banks, government grants aim to strengthen small traders in India and generate employment opportunities. The Government of India has set up Small Industries Development Organization which looks after the financing of small entrepreneurs. The organization runs various financing schemes such as Credit Guarantee Scheme and the Microfinance Programme to make business loans available for small traders.

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small traders
source: dnsaccountants

Our government had started Credit Guarantee Scheme after the banks become reluctant to provide financial assistance to bear the higher risk of providing small traders loan. Under this scheme, a trader doesn’t need collateral to get the loan; however there are guidelines that you will be required to meet. You can also be given financial aid under the Micro and Small Enterprises Sector fund.

Small traders also have an option to avail finance from the National Small Industries Cooperation. One can obtain loan for variety of purposes such as working capital requirement, purchase of stock, and finance for marketing resources among others.

Small traders can also consider lending companies

Apart from the banks and government grants and financial schemes, small traders also have an option to get money from peer-to-peer finance companies. Many of these companies exist where the lender provides funds instantly and there is a bank-less transaction involved between both the parties. The rate of interest charged from these lending organizations could be exorbitantly high when compared to banks but there are no lengthy formalities involved. You can even check a few of these lenders online and figure out the ones in your locality. Some of these companies use digital currencies for exchange. These lenders do not charge GST on the interest charged thus small traders are exempted from GST. Depending on your requirement and urgency of getting financial aid, you can connect with a peer-to-peer lending organization.

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small traders

With numerous options available out there for business loans, small traders are advised to approach departments for government grants as they provide better interest rates than bank and are easily accessible as well as quicker when it comes to getting the monetary aid for your new venture.