INTROUDCTION
A business loan is a loan that is borrowed for business purposes that is for any investment of or expenses incurred in a business. An entrepreneur or company can either find unsecured business loans that do require a collateral or can borrow secured loans against their business assets or goods they purchase, and this depends on the type on financing one chooses to go with. Interest rates for such loans can be fixed or can vary depending upon the term period within which it has been agreed to be repaid.
TYPES OF BUSINESS LOANS
● Working Capital Loan – A working capital loan is a loan that is borrowed by a business to use it for its daily requirement such as buying tools or machinery, buying any raw materials, to pay salaries, etc.
● Term Loan – A term loan is a loan that must be paid back to the lender in regular installments. They can further be classified into long- and short-term loans depending upon the time that is granted for the loan to be repaid.
● Letter of Credit – This is a type of loan where the lender provides guarantee of payment to firms that deal in export and import trade.
● Bill Discounting – A bill discounting is where a seller receives an advance amount from the lender at rates that are discounted. The buyer would then contribute in the form of interest and monthly fee periodically.
● Overdraft – Overdraft is where the bank provides for withdrawal of cash from a person's account beyond the amount that is in the account.
● Equipment finance – Here the loan is granted exclusively to borrowers for the purchase of new equipment, machinery or to update their technology.
● Loans under Government Schemes – Government provides loans to businesses under various schemes to encourage businesses to grow and develop. Apart from the above classifications, loans are further divided into offline and online business loans. Technological development has made it possible today to obtain a loan by sitting at home through online platforms of lenders. The distinction of online and offline business loan is based on the way the loan is acquired, whether it has been acquired by visiting a financing corporation or lender physically and obtaining the loan, or by obtaining a loan online by borrowing with the help of internet sources.
OFFLINE BUSINESS LOANS
Offline mode of acquiring loans has been the standard method since the ancient times. Here, the person in need of a loan visits a lender or a finance corporation and applies for a loan by filling out a form and by submitting the required documents. The hard copies of the required documents are verified by the potential lender and then the person applying for loan may obtain the loan if his/her profile qualifies for a loan.
ONLINE BUSINESS LOANS
Online lending and borrowing are becoming common. When a person applies for an online business loan, he/she can figure out the amount of loan they can obtain and their eligibility criteria by visiting the concerned website. Those who would like to borrow can check their credit score, fill out the required forms and submit the necessitated documents for obtaining the loan. The loan sanction would be notified through an email or any other mode that has been mentioned in the portal of the lender or the financial corporation.
ADVANTAGES OF OFFLINE BUSINESS LOAN OVER AN ONLINE BUSINESS LOAN
1. Building relationships: An entrepreneur builds relationships with his/her banker or lender when he/she physically obtains business loans. The rapport that a businessperson creates matters a lot with the respect to building trustworthiness and better relationship with the lender.
2. Personalized service: When an entrepreneur visits a financial corporation or a bank, he/she obtains the advantage of obtaining personalized service from the bank. The borrower's needs can be catered to in a better way as face-to-face meeting allows one another to understand their respective requirements.
3. Terms and conditions: Every entrepreneur would not be willing to sit hours together to go through the terms and conditions of the loan, and for such people it is better for them to avail loan through offline modes as the lender can clearly explain to them the terms and conditions of their agreement. It avoids ambiguity.
4. Illiterate entrepreneurs: Illiterate entrepreneurs would require support and assistance from staff or employees in a bank or financial institution to understand the requirements that need to be fulfilled by them to avail a business loan. Further, many illiterate people may not know how to use the internet or may make some mistakes in applying for an online loan.
5. Technical glitches: In online loans, there are chances of technical glitches and having to go through the trouble of redoing any application process or so. Further, information may even be leaked and since such applications would contain important information regarding finances of the borrower or his/her business, it would be a bane and such information could be exploited.
ADVANTAGES OF ONLINE LOANS OVER OFFLINE LOANS
1. Comfortable and convenient: Online loans can be applied from anywhere at any time with the help of an electronic device having connected to an internet source. Such loans can be applied without having to wait for hours in a bank or a financial institution.
2. Documentation: Scanned copies of KYC and other documents can be uploaded online without having to take hard copies of the same and without having to go through the trouble of safeguarding those documents in a neat and tidy manner before submitting it to the lender.
3. Fee: No additional fee would apply in an online loan during the process of availing the loan except for those that are clearly provided in the lender's websites. Offline loans on the other hand may require additional fees as there might be commissions that need to be paid to agents.
4. Comparison: An entrepreneur can compare the terms and conditions, his/her loan eligibility in various websites within a few minutes. Further he/she can even apply online loans through online mode in various portals in the same day, however this is not the case when it comes to offline business loans as when one goes physically to a bank or to a lender, it consumes a lot of their time during the day, sometimes even the entire day.
5. Immediate response: An application for online business loans helps the prospective borrower in receiving a quicker response in comparison with an offline application. Instant and quick responses make borrowing loans much simpler for an entrepreneur.
6. Physical restrictions: Especially in times like the pandemic due to COVID-19, an online business loan would be much preferable to the individual wanting to avail the loan and even to everyone else in the world as physical contact during such times is discouraged.
In conclusion, both online and offline business loans are good. They have their pros and cons, and a person in need of a loan is to assess his/her situation to understand which would suit them better. For example, a small entrepreneur who is not well-educated might prefer an online business loan as he would understand the application process and terms and conditions of the loan better from another person (staff/employee of the lending institution) who have some amount of expertise in the same. On the other hand, an entrepreneur who is always busy during business hours might find it easier to avail an online business loan as he/she can do it at any time and place.
