Expand a new business line with Business Loan

Starting a new business is an exciting experience. You get the opportunity to learn new things, connect with people, and network with various industry leaders. Operating a business in multiple domains always increases profitability. But one thing that all businesses need to take care of is managing a constant flow of funds. Previously, businesses relied on venture capitalists and angel investors to get started in a new business line. But with easy access to business finance, things changed drastically.

Types of Business Loan to expand a new business line

1. Term Business Loan

They are short-term business financing products that offer funding assistance of up to Rs 25,00,000. You can use the funds for meeting diverse expenses, and the lender does not put restrictions on the end use. Approval relies heavily on your company's financial statements. If your balance sheet reflects more liabilities and minimum assets or if it displays cash outflow in excess of inflows, the lender rejects your application.

Another crucial thing in business loan approval is the debt coverage ratio. The loan will be rejected if over 50% of your company's revenue is utilised in dealing with ongoing debts. 

2. Business Line of Credit

A business line of credit, also known as a business LOC, is an example of a revolving loan. The lender transfers the specified sum to your credit account after evaluating various risk parameters associated with your profile. You can withdraw the funds at any time and for any amount.

Business LOCs do not have a fixed monthly obligation and can be paid off at any time, within the time frame specified, without incurring any additional costs. The interest on this loan is charged only on the amount you use, not on the total amount transferred to your credit account. 

A line of credit is useful for meeting recurring operating expenses in your new business.

3. Working Capital Loan

Working capital finance is a short-term loan available against your company's inventories. It provides funding up to a maximum of Rs 5,00,00,000. The repayment term is flexible, extending up to 36 months.

This loan product is specifically designed to meet day to day expenses of a company. 

Also Read: A Quick Guide To Finding The Right Loan For Your Business

How to expand a business in India?

1. Opening New Branches

Entering a new business line necessitates the establishment of a new office. If you own a clothing store and want to start an electronics business, you cannot do so under the same roof. The reason is it will cause confusion among customers and may have a negative impact on your brand's image.

Opening a new branch necessitates funds not only for a lease agreement or rent payments but also for the entire office setup. You must pay for new furniture, computers, and office supplies. Opening a new branch would cost between Rs 6,00,000 and Rs 10,00,000, which is easily covered by a business loan.

2. Paying Staff

When you enter into a new business line, you would need to build a new army of employees having the necessary skills. For example, if you own a restaurant with excellent chefs, these chefs will be unable to provide their services if the new business you open is related to hardware.

Entering a new business necessitates hiring skilled employees. Even if you hire ten employees at Rs 20,000 per month, your annual salary payment will be around Rs 24,00,000. Moreover, employee salaries are a recurring expense. You may consider opting for a line of credit or term loan to deal with this.

3. Marketing

Marketing is crucial to the growth of any business. Your product and services must be promoted so that people become aware of your products. Marketing must be done both online and offline. For the former, you can hire a digital marketing agency. They will help you build your brand image and make you visible when someone searches for the product you sell by publishing regular posts, creating long-form content, targeting emailers, and following hardcore SEO tactics.

Offline marketing requires money for display advertising, print media advertising, and pamphlet distribution. Marketing is cyclical and necessitates significant funding, which a business line of credit or term loan can provide.

4. Equipment

Plants and machinery ensure that your business runs smoothly. However, depending on the type of new line of business, purchasing them may place a significant strain on your existing business revenue. For example, if you are a small clothing store and want to enter the cloth manufacturing business and supply in bulk volume in the international or domestic market, you will need to purchase various expensive equipment that could cost you more than Rs 50,00,000.

In this case, equipment finance, which is a secured business loan, is your best option.

Considerations before availing business loan to expand a new business line

• You can obtain this loan only if you have an existing company. The lender will not provide funding if you are a new start-up.
• Financial institutions consider your financial statements, business credit history, debt-to-revenue status, and liquidity position to grant funding.
• Always file your tax returns on time and make sure you have all the necessary registrations and permits to run your business.
• Review business lenders' qualifying criteria and see if they sanction funds for the industry in which your company operates.

Also Read: All You Need to Know About Business Loan Interest Rate 2022

Final Words

A business loan can help your new business thrive. They are accessible with just a few finger clicks on the smartphone. Furthermore, the majority of these loans are unsecured and offer repayment flexibility. Just keep an eye on your credit report and try to maintain a positive cash flow to get a low business loan interest rate.

Frequently Asked Questions

1. How much loan can I get to Expand A New Business Line?

You can get a 10 lakh business loan for expanding a new business line, depending on factors like your creditworthiness, business plan, and lender's policies.