Business Credit Financing Small
The reader must know at the very outset that the small business units also require finance for different types of activities and a person should never assume that there is no requirement as such in the small business enterprises. This is because the business processes through which the small business enterprises have to undergo are exactly the same as they are for the large business houses. The only difference lies in the quantum of finance that is
needed. The finance is required for many purposes like for the purchase of raw material, for financing the creditors, for buying the machinery, equipments etc. Thus, finance is an indispensable part of the small business unit. Let us see the various sources from where a small businessperson can easily arrange for the finance.
Various Sources of Finance
As far as the different sources of finance for the small business units is concerned, there are many sources from where a small businessperson can easily avail the finance. Apart from friend and relatives that indeed forms the part of unsecured loans; there are many types of financial institutions like the banks, finance companies and other non banking financial institutions. It is also to be noted here that the banks are of course the most important financial institution that provide finance to the small business unit. If the small businessperson is already dealing with a bank, first of all he should contact his bankers to get the finance because it has been observed that the banks likes to provide the finance to its existing customers very easily.
Only after contacting his bankers, a person should search for another financial institution. It is also to be understood here that in the present time, almost all the financial institutions that provide finance or credit to the small business units have their web sites fully loaded with all the required information like the rate of
interest, the quantum available, the collateral etc. Also, the online quotes are available online absolutely free as far as the rates of interest is concerned. Before taking the finance from any financial institution, a person should compare the rate of interest that would be charged in the account and only then, the credit facility should be availed because the interest debited in the account is indeed the cost of the credit facility availed and a person should try to get the credit facility as cheap possible. Let us see, what are the different types of credit facilities that are available for the small business units.
Credit Facilities for the Small Business Units
Almost all the financial institutions across the world provide the same type of credit facilities though the names are different. Among the common credit facilities that are available to a small business unit are:
Working capital finance: The working capital finance is the most important type of credit facility that is available to a small business enterprise. It is known by different names like the revolving credit, cash credit facility etc. This type of credit facility is given for bridging the temporary requirements for finance by the small business unit. The small business enterprise is provided a limit up to which it can easily withdraw the amount and can deposit the proceeds also as it received from its various parties. Thats why in some countries, it is also known as the revolving credit. Also, there is no restriction on the number of transactions that are made in the account by way of withdrawing the money so long as it does not exceeds the limit provided by the financial institution. This facility is generally provided against the hypothecation of the inventory, accounts receivable etc. The rate of interest that is charged on this type of credit facility is generally more as compared to the other facilities available.
Term loans: This is another type of credit facility that is being provided by almost all the banks and the other type of financial institutions. As the name suggests, this type of credit facility is given for a fixed period of time and the small businessperson has to repay the amount borrowed as well as the interest debited in the account by means of regular installments as mutually agreed upon by the number of documents signed by the financial institution as well as the borrower at the time of taking the loan. This credit facility is provided for acquiring the fixed assets only. Thus, if a small businessperson intends to buy machinery, or vehicle for the business purpose, term loan is the answer. It is also provided for various other such purposes like purchase of land for the business expansion, or even making improvements on land etc. The striking feature of this type of facility is that the small business person has to provide some collateral for the loan amount taken and if there is no such collateral available, the asset that has been purchased out to the loan amount is held as security for the credit facility availed. As compare to the working capital credit facilities, the rate of interest on term loans is less.
Apart from these two types of credit facilities available, there are also other credit facilities that a person can easily avail. These are the bank guarantees that are taken by the small business unit for securing the government orders etc and the letter of credit that is given to the small business unit for enabling the imports. Thus, there are many types of credit facilities that are available to the small business units. Apart from the above, there are also government grants for the small business units that a person can also avail.
The only precaution that has to be taken is that a small businessperson should compare the different criteria of credit of the various institutions and only then, he should avail the loan. Thus, there are many credit facilities for the small business After going through the above discussion, it can be said that there are many types of credit facilities that can be availed by a person depending upon his needs. Before availing a credit facility, a person should compare the different aspects as discussed above. He can also go for the grants that are available from the government, if he qualifies in the eligibility.
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