Five reasons why companies apply for a business loan

Companies require finance for various reasons, mostly for upgrading necessary machinery and improving cash flow. Here are some common reasons why companies apply for a business loan:

To fuel working capital

Some lenders offer a business loan featuring a convenient Flexi loan facility to finance your working capital when payments are delayed, and your working capital cycle has increased. Also called a Flexi business loan, this option offers you the option of borrowing as much as you need, when you need it, within a sanctioned limit. You only have to pay interest on the amount used and not the entire amount sanctioned.

This facility is extremely beneficial to fund your working capital needs, as these can vary every month. Since you don’t have to make multiple loan applications, it is a good way to meet unpredictable expenses like paying a supplier more for increased raw materials when demand is high. Alternatively, suppose you can predict the requisite amount of working capital for your business needs. In that case, you could also take a specialised working capital, which gives you a fixed amount for a fixed repayment tenor.

Additional Read: The life cycle of working capital explained

For acquisition of assets

An architecture partnership could purchase various assets over time like drafting machines and auto CAD software, new office premises or company vehicles. These assets add value to an architect’s business operations but can be expensive. This is where a business loan can help. Your business can lease or buy specialised machinery by taking a customised machinery loan and increasing your firm’s productivity.

Additional Read: How to prepare your organisation for a business loan

To restructure debts

Repayment of debt helps prevent your firm from having financial problems in the long run. For example, an architecture partnership could have acquired a range of debts to fuel different design and construction projects. These could have varying rates of interest and different payment schedules that are expensive and hard to keep track of. In such a case, the firm could use a business loan with nominal interest rates to repay the debt affordably.

When launching a new product or diversifying

A new launch or entering a new market requires sufficient finances for both research and execution. Consider the example of a malted milk manufacturer looking to launch a new product. His firm required funds to finance research into consumer preferences for flavours, conduct market research for price points, and employ a team of chemists and nutritionists to create a new malt beverage. He can thus take a convenient business loan with a flexible tenor to finance these activities.

Additional Read: How to apply for a business loan

When funding a new marketing campaign

A new marketing campaign would require you to spend on various costs like hiring strategists, creative copywriters, and graphic designers. It could also require funds for executing promotional strategies like sales displays. If these funds are not readily available, your firm can easily use a Flexi business loan to finance unpredictable marketing expenses.

Why a business loan is a convenient source of finance for companies

Borrowing a business loan is a convenient option because of its flexibility and affordability. It offers various benefits like no need for collateral, quick disbursement directly to your bank account, easy pre-payment options, pre-approved offers and much more.

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