Many business owners find themselves in the need for small business financing. They start the business with the dream to make it big and have a loyal customer base. But to turn this dream reality, a lot of hard work, passion, and capital are required. This makes availing small business financing imperative.

What is Business Financing?

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Business financing is the credit money availed from a lender to continue business operations, grow and diversify operations, and also expand the business. It usually means receiving external money for the business in the form of a business loan. Also, the business owner may think that his business is performing well but it can be a wrong belief. The reason for it is that the aim of the business owner should only be to run the business efficiently and profitably but to grow and expand it as well.

Types of Business Financing

business financing

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There are types of business loans for small scale business. A business owner can avail the facility as per his needs. However, to be able to make a sound decision, he should know the types of loans or business funding sources available at disposal. The following are different types of business financing:

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Bank Loan

This is the most common type of business financing and is widely known as well. Bank loans help in expanding the business. However, the eligibility criteria and documentation required for a bank loan are very stringent and not all small business owners are able to avail this facility.

Peer to Peer Lending

It is one of the most common ways of generating business funding. In this type, individuals with extra money lend their money to people in need of money in return of interest. Nevertheless, a legal contract is involved here. Also, it is not necessary for the business owner to know who the opposite party is. However, the regulations for P2P are still under process in India.

Credit Cards

Many business owners may not have thought about this option. Nevertheless, funds for business can be availed through credit cards as well. However, this method is a bit risky. The method can be used wisely keeping the credit utilization below 30% to maintain a good CIBIL score.

Factoring

It is another widely used and smart way of getting funds. The manufacturer who is in need of machinery but does not have enough liquid funds can use this method. He can get instant cash for machinery for a third party in exchange for his accounts receivables. In simple language, a business owner who is in desperate need of funds can sell his account receivables, or invoices, to a third party and get the much-needed cash in return.

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Friends & Family

Friends and family are a great source of business funding if the business owner is not looking for an external source of funding. However, this source can be tricky sometimes and hence, it is suggested to establish a written or formal agreement in order to avoid any bad blood later.

NBFC Business Loans

As discussed above that bank loans can be a tedious and time-consuming option. The business owner can consider NBFC business loans. NBFC offers loans for business at minimal documentation, basic eligibility criteria, and in just 3 days. This allows the small scale businesses to have access to formal funding in just a matter of a few days.

Benefits of Business Financing

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Let’s now take a look at the benefits of business financing:

  • The first and foremost benefit of availing a loan for business is that the business owner gets access to additional funds. He can use the funds for the betterment of the business.

  • The interest paid on the loan is tax exempt since it is an expense.

  • For business owners who often face liquidity crunch, they have access to ready funds. Thus, he is not required to worry about liquidity to run the small business.

  • With ready-to-use finances available, the business owner can make suitable business expansion plans.

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Now that you know 6 types of business funding, you can choose the one that will help you in meeting your business needs in an apt way. Additionally, you can also register your business for free at the Connect App by ZipLoan to build your business network. Through the e-marketplace, you can create a business profile, list your products/services, find business, discover new business opportunities, and build connections.

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