Access to capital is one of the most fundamental aspects of a business as it determines whether or not a small company or an MSME can become successful and, based on that, can choose to get a loan amount from traditional financial institutions.
In the era of financial inclusion, all small businesses and entrepreneurs must get the opportunity to access that fund. In that case, a loan agency comes for help to validate and approve the loans faster with their improved mechanism.
In this blog, we will look into the roles and responsibilities of loan agencies and how they are facilitating small businesses to get more loans and maintain a solid loan book in the process.
The Need for Capital in Small Businesses
Small businesses require capital for various purposes, and for that, they need substantial funds to stay on track with the business’s growth plans. A company can expand, make inventory purchases, acquire another company, or meet its operational expenses.
Here, a company needs to gather enough capital so that the business remains cashflow positive and can invest in the manufacturing and inventory processes, which will help the business stay feasible in the next business cycle.
Now, small businesses face traditional banking challenges, which reject the application of small businesses to get funds due to its strict eligibility criteria and lengthy approval processes.
The Role of Loan Agencies
Now, loan agencies are the different lenders that the central bank registers and has a license for disbursing funds. Here, these companies, sometimes by themselves or by making a partnership with a traditional bank, offer the businesses loans.
The only difference is that these loan agencies bring new technology and processes for disbursing loans, which reduces the stringent policy but also ensures that the bank doesn’t incur high NPAs for a less strict lending policy.
Now, these agencies address the micro level and select a certain customer base that they want to serve and, based on that, create parameters that are relevant to that set of customers. Through each financing option, a lending partner can cater to the different needs of the business. For the business, it’s become easy to reconnect with the lender and create a relationship that helps them to get more loans.
Types of Financing Available
Here, a loan agency offers different kinds of lending products to a business as it helps them to choose a particular one that is beneficial for the business and take that loan for the company.
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Term Loans
It is a type of loan that a lending institution offers and a company needs to pay that entire amount along with interest after a certain period during the time of repayment. It helps a business to invest the entire amount in the asset they are building and pay off the loans in time.
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Invoice Financing
It is a credit facility that allows a company to borrow money by providing invoices as collateral. It is generally taken by a business when they need to meet the immediate cash flow, and for that, it is the best line of credit. Once a company books profit in a business cycle, then in that scenario, one can repay the loan and take hold of the collateral.
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Merchant Cash Advances
It’s a kind of loan where a loan agency provides a certain amount of money in exchange for accepting a certain percentage from the profits of a business. It’s the loan given against the percentage of profit the company makes.
Advantages of Working with Loan Agencies
The benefits of partnering with a loan agency are that it can approve a loan faster, and that helps a business meet its obligations. Here, a person who wants to work in this industry can get into it by doing Axis Bank DSA registration, and through that, they can get a better ability to serve new customers.
A loan agency, once doing business with a company, understands its financial appetite and, based on that, starts offering customized loan options to a small business as it starts to grow. For the company, it’s also beneficial as they have already accessed the company credit line and can easily disburse the required amount in no time.
These are the main advantages of a company working with a loan agency rather than traditional lending institutions.
