How to Choose the Right Loan Product for Your Business

When it comes to business financing, selecting the right loan product is crucial. The wrong choice can lead to high-interest rates, unnecessary collateral requirements, and financial strain. In this blog, we will explore a real-life case study that demonstrates how choosing the right loan product can save businesses money and provide better financial stability.

Case Study: Finding the Best Loan Product

Background

A businessman in the RFID manufacturing industry wanted to expand operations and set up a new unit in Goa. The project required significant investment:

• Land Cost: 1 crore (allocated by the Goa government)
• Building Construction: 6 crore
• Plant & Machinery: 18 crore

However, he faced a major challenge—banks demanded 25% to 100% collateral security, which he did not have.

Loan Approval Challenges

The businessman approached multiple banks, but his loan applications were rejected due to insufficient collateral. This is a common issue faced by many entrepreneurs who lack additional assets to pledge.

How the Right Loan Product Solved the Problem

Solution: Choosing the Right Lender

After thorough analysis, it was identified that SIDBI (Small Industries Development Bank of India) offered a specialized Machinery Loan scheme. This loan was ideal because:

• Required only 25% cash margin
• Offered 100% machinery financing
• No additional collateral was needed
• Lower interest rate (9%) compared to NBFCs

Loan Approval & Cost Comparison

With the right loan selection, the businessman secured an 18 crore term loan from SIDBI.

Why SIDBI Was the Best Choice?

• Interest Rate: 9% (SIDBI) vs. 12%-18% (NBFCs)
• Security Deposit Interest: 7.5% (SIDBI), whereas NBFCs offer no interest on deposits
• Loan Eligibility Calculation: NBFCs calculate eligibility based on current cash flow, while SIDBI considers future business projections

By choosing the right loan product, the businessman saved lakhs in extra interest charges and avoided unnecessary financial burden.

Key Takeaways for Business Owners

• Analyze your business needs and financing options thoroughly.
• Compare banks, NBFCs, and government financial institutions before applying.
• Consider government-backed loans (such as SIDBI’s machinery loan) to avail lower interest rates and relaxed collateral requirements.
• Seek expert guidance to identify the best loan product for your business expansion.

Need Help Choosing the Right Loan?

If you’re looking for business financing solutions, FinanceSeva.com can assist you in finding the right loan product. Our experts provide personalized guidance to help you secure the best financial support for your business growth.

 Visit FinanceSeva.com today or comment below if you have any questions!

FAQs

1. What factors should I consider when choosing a business loan?

Consider interest rates, collateral requirements, loan tenure, eligibility criteria, and repayment flexibility before selecting a loan.

2. Why was SIDBI a better option in the case study?

SIDBI provided a lower interest rate (9%), did not require additional collateral, and considered future business projections instead of current cash flow.

3. How can I apply for a SIDBI loan?

You can apply through SIDBI’s official website, visit a branch, or seek assistance from a financial consultant like FinanceSeva.com.

4. What if my business has low creditworthiness?

Government-backed loan schemes like SIDBI often have relaxed credit criteria compared to traditional banks and NBFCs. Additionally, working on improving cash flow and business plans can enhance eligibility.

5. Are NBFCs a good option for business loans?

NBFCs can be an alternative if you need quick approval or lack eligibility for government schemes. However, they usually have higher interest rates (12%-18%) and stricter repayment terms.

6. How can FinanceSeva.com help me?

FinanceSeva.com provides loan consultation, lender comparison, and end-to-end loan application assistance, ensuring you get the best financing options available.

Need help? Contact us today and secure the best loan for your business!