Finance for business expansion may be obtained through several avenues. Some of these include personal funds, retained earnings, or credit from friends and relatives. Alternatively, you may apply for a loan with financial institutions and receive the required funds.
Here are four ways to raise money for expanding your business.
- Personal resources
Using your personal capital and family savings is a low-cost alternative to funding your business. You may use a personal credit card or a home equity loan to raise money. You may also avail of a loan against your insurance policies or use money from your retirement funds.
- Credit from friends and relatives
This is a good alternative to funding small businesses. Your friends and relatives know you and would not be worried about your creditworthiness. Furthermore, you may enjoy flexible repayment terms. However, if you fail to repay the loan, it could damage your personal relationship.
- Retained earnings
One of the best ways to fund the growth of your business is through retained earnings. These funds are earned through your business and incur only the opportunity cost. Opportunity cost is the interest you would earn if you retained these earnings in a bank account. However, youhave to use your current profits to fund business expansion.
- Institutional funding
Another way to fund expansion is through business loans. Banks like HDFC and SBI offer these types of credit facilities. Additionally, non-banking financial companies (NBFCs), such as Fullerton India and Capital First provide such loans. Lenders provide different types of loans for your business. You may apply for such loans either online or offline as per your convenience.
Here are four common types of business loans in India
- Installment loans
The borrowed amount is repaid through Equated Monthly Installments (EMIs). The EMI includes principal and the interest costs. These funds may be used for various business purposes.
- Balloon loans
Under these loans, you pay only the interest during the tenure. At the end of the loan period, you make a balloon payment towards the principal amount.
- Interim loans
These types of loans are appropriate if you are a contractor who builds new facilities. When the building is completed, the mortgage on the same may be used to repay the loan.
- Letter of credit
Such funding is available for international traders to guarantee payment to foreign suppliers. The letter of credit provides the amount to the borrower up to a specified date.
Loans may be secured or unsecured. Under unsecured loan, there is no asset pledged as collateral. However, the lenders’ risks are higher and therefore, these attract higher business loan interest rates. In comparison, secured loans are available at a lower rate of interest. Most lenders provide secured loans and you may be able to avail of an unsecured facility only if your business has a low risk of default.
Click here to know more about business loans.