Types of Businesses that Qualify for Small Business Loans

Micro, Small & Medium Enterprises (MSME) are the backbone of the Indian economy. These small-scale businesses generate employment, drive innovation, and contribute to overall economic growth. However, starting and running a small business is full of challenges. One of the most critical challenges is related to obtaining capital. This is where small business loans come in. Small business loans give entrepreneurs the money they need to start, expand, or grow their businesses. Let's take a quick look at what small business loans are.

What are small business loans?

Small business loans are credit products specially designed for small-scale businesses. It allows them to grow and expand their business without worrying about financial roadblocks. However, the eligibility criteria for small business loans might vary from one lender to another. Reputed financial institutions like SMFG India Credit have favourable eligibility criteria, which are easy to meet. Let's discuss various types of businesses that qualify for small business loans.

Start-Ups

Start-ups are new businesses that are just taking off. Not having a concrete financial history or significant assets is a big challenge for start-ups when it comes to obtaining funds. However, many lenders offer small business loans specifically designed for start-ups. These loans may have lower credit requirements, and lenders may be more willing to take on the risk of lending to businesses with high potential.

Sole Proprietorships

A sole proprietorship is a one-person show. This business is owned and operated by one person. It is the simplest and most common type of business entity. Sole proprietors may need financing to start and/or expand their businesses, and they can qualify for small business loans. However, since the owner is personally liable for the company's debts, lenders may require a personal guarantee to secure the loan. A good credit score can work in favour of sole proprietors. 

Partnership Business

A partnership is a business owned and operated by two or more people. Partnerships can be general partnerships, where all partners share equally in the profits and losses of the company, or limited partnerships, where general partners manage the business, and limited partners provide funding but have no management responsibilities. Partnerships can qualify for small business loans, but lenders may require a personal guarantee from all partners.

Limited Liability Companies (LLCs)

A Limited Liability Company (LLC) is a corporate entity that provides limited liability protection to its owners. The company's identity might differ from that of the owners/founders. LLCs can qualify for small business loans, but lenders may require a personal guarantee from the owners, especially if the LLC is new or has a limited credit history.

Corporations

A corporation is a business entity that is separate from its owners. Corporations can qualify for small business loans, but lenders may require collateral to secure a loan. This collateral may include the assets of the corporation, such as real estate or equipment, or the owners' personal assets.

Franchises

A franchise is a business model in which an entrepreneur buys the right to use a company's brand name, products, and services. Franchisees can qualify for small business loans, but lenders may require a personal guarantee from the franchisee and may also require approval from the franchisor. 

Home-Based Businesses

Home-based businesses are mainly categorised under the small business category as it is operated using limited means. Many small businesses are run from home, and home-based businesses can qualify for small business loans. However, lenders may require a personal guarantee from the owner and proof that the business is legitimate and has a track record of generating income. 

Final words 

Small business loans can greatly help businesses that want to expand but don't have the financial means. Many types of businesses can qualify for small business loans, including start-ups, sole proprietorships, partnerships, LLCs, corporations, franchises, and home-based businesses. However, it is essential to do research and find a lender that offers the right type of loan for your business needs. It is also important to borrow only the required amount of funds and not more. More funds will invite additional interest charges, which can affect the profitability of a business. Apply for a small business loan today!