Every possible business loan applicant finds himself or herself stuck with a frequent contemplative question - which scheme to opt for? Be it a bank or an NBFC, the money lending industry has an extensive range of customized, purpose-specific products to offer. The availability of diverse schemes accessible with an plenty of irresistible benefits baffles the borrower. However, the conundrum can be dodged with a little clarity on the business demands.
There are three factors to consider: how much your business needs, how long it will take you to repay, would the business need additional financial support later? Explaining these secondary questions will help you arrive at an answer to the primary question, that is, out of the working capital loan and regular SME/MSME loan, which scheme is beneficial for business?
So, if you’re stuck on the same question, here is how to distinguish between the two schemes and proceed with the fitting alternative.
1. Identify the need
Identifying all aspects of the financial needs: how long the need will prevail, is it repetitive, how much would be sufficient etc. This will make it easier for you to come up with the more practical solution. A working capital loan is to help business take care of any short-term financial obligations and commitments. Whereas, regular SME loans are better to take care of larger, long-term capital needs.
2. The repayment plan
Having a proper response to the queries raised above gives you a clarity on how much time it will take you to repay the loan. The same will set priorities and help you identify the appropriate scheme depending on the repayment plan.
3. Frequency of requirement
Is it going to occur again or it is a one-time need? For repetitive needs, it’s better you opt for a working capital loan scheme that offers a line of credit. However, if the financial emergency occurred due to delay in payments from the customer's side, working capital loans are better alternatives.
Also Read : Is a Working Capital Loan the Right Choice for Your Business
Aman Khanna is an experienced financial advisor who is well known for his ability to foretell the market trends as well as for his financial astuteness. He has an MBA in finance from Toronto University as well as years of experience delivering seminars on sound financial practices and debt management.