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To earn money from your business, you first need to invest money. Irrespective of the size of your business, you need funds to launch and grow it. Many times, businessmen dig into their savings to finance their business and its requirements. However, instead of doing so, it is advised to resort to external funding and keep your personal funds separate from business funds to ensure sufficient fund is available to meet your any personal emergency requirements.

Now, let’s understand what those reasons for which businesses may need external funding are –

1.Start a business

New businesses which are still in the start-up stage would need finance to get off the ground. Here an external funding can be used for everything from purchasing/replenishing a stock, hiring staff, paying salary to pay the rent of the office.

2.Purchase Assets

As a business grows, it needs new machinery, vehicles, equipment, etc.; to compete with competitors and stay in the market. While you may have sufficient funds as working capital, you may need to go for external funding to buy new assets, including technology for your business expansion. And remember, new technology is not about dealing with computers only, as it involves new machinery and tools which can ease work with great quality.

3.Grow business

External funding can make working capital available to you for expansion. Here, the expansion may include opening new offices, purchasing new lots or doing any activity which can take your business to the next level.

4.Meet emergencies

Life is full of ifs and buts. The uncertainty of life can have a major impact on your business as well. What if you got a big contract that needs to be completed in 15 days? Or what if you have been hit with GST rules? To meet any unplanned requirement, external funding is the right option.

5.Develop and upgrade products

In today’s fast-paced business world, where competitors are constantly updating their products and services, your business also needs funds to develop and market new products & services. The external funding can be used to cover the cost of product testing, marketing research, product launches, etc.

6.Enter new market

A business expansion plan includes new markets. These may include targeting new customers and locations. By resorting to external funding, it is feasible to cover the cost of transporting goods, setting up new retail outlets, planning media campaigns, etc.

7.Takeover or acquisition

When a business purchases any other company, it will require huge money to pay for the acquisition. You should go with external funding to pay the owners of the company which you have bought.

Now when you know those situations when you need external funding, let’s discuss from where you can get the funds.

Business Loans as an External Funding Option

Amongst all the available finance options, business loan is apt to raise money to meet divergent business requirements due to the following reasons:

1.Easy to Get

As happened in most of the cases, a business loan is easily available without collateral. It means, even small businessmen or startups can apply for the loan and use it to meet both immediate and planned requirements without thinking about which asset you should pledge. Further, with business loans, you get an opportunity to apply for the loan online in a few clicks of the mouse. It is the power of the internet that let you keep a tab on the post loan disbursement mechanism by checking various factors, like repayment schedule, loan certificate, etc.

2. Flexible repayment schedules

As a borrower, you can decide the loan repayment schedule as per your convenience. By consulting the lender, you can chalk out a repayment plan as per the cash flow of your business to avoid facing issues while servicing the loan. Further, borrowers can increase or decrease their monthly instalment as per the situation.

3. Effective funds utilisation

Whether you need money to start a business or expand it, a business loan allows business owners to manage their money requirements effectively in accordance to their needs. Further, in most of the cases, lenders do not ask you about the purpose of the loan. It means, if you want to use the loan as working capital or for opening a new office, you can utilise the funds for meeting different needs of your business.

4. Build credit score

Some external financing is necessary to build a credit history as without it you would not be able to get large-scale financing in the future. Taking out a business loan and sticking to the repayment schedule will help in building and bolstering business credit for the future.

Conclusion

Overall, a business needs cash at different stages of its lifespan. Therefore, it is essential to carefully review your requirements and have a business plan ready to make the right decision. Here, business loans win hands down when it comes to convenience, flexibility and ease.

So, while external funding can be considered a king, business loan deserves a seat on the throne.

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Suman Chaudhary
An engineer by education and writer by profession, Suman keeps tab on startup ecosystem of India and leads the research team of IndiaWeb2 for covering funding deals, merger & acquisition and market reports.

Three Lives. Five Cities. One Startup

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