Guide to Sole Proprietor Business Loan for Small Business

Oct 26th 2023
Loan
A Comprehensive Guide to Sole Proprietor Business Loans for Small Businesses

Sole Proprietor Business Loan for Small Business, In a country like India, a sole proprietorship is the most widely chosen type of business. Whether it's your local hotel or restaurant, grocery store, export house, travel agency, to mention a few, chances are it will be run by a single entrepreneur. Though the overall setup of a proprietorship business may look feeble, these businesses play a great role in driving growth in the Indian economy. This is why both public and private banks and financial institutions offer easy, affordable, and valuable business loans to sole proprietors to help you set up a new unit, expand an existing one, managing working capital, buy new equipment, and do other things. Explore sole proprietorship examples in India and learn more about sole proprietor business loans in this post.

What Is a Sole Proprietorship?

An unincorporated company run and owned by only one person is known as a single proprietorship. It is the most basic type of business structure because the owner and the company are not legally distinct entities. It can also be referred to as sole proprietorship, individual entrepreneurship, or just trading.

Using their legal identity, the business owner—also referred to as a proprietor or trader—conducts business. They can also decide to register a trade name with their local government in order to conduct business under a different name.

Read More: How To Start a Small Business in India?

The simplest and least expensive kind of business to launch is this one. It is therefore typical among freelancers, small enterprises, and other self-employed people.

If a sole proprietorship experiences significant growth, it may evolve into a different, more intricate type of business structure.

  • Due to the lack of government regulations, sole proprietorships are the most basic type of company structure and may be started quickly and affordably.
  • Owners of the company have complete control and make all of the profits, but they also individually face limitless legal responsibility.
  • The quantity of cash available, the capacity to obtain outside help, and the possibility of a talent gap might be the only obstacles facing sole proprietorships.

What is a Sole Proprietorship Loan?

A sole proprietorship loan is a type of business loan that is intended to help proprietors in running their business smoothly. It functions very much similar to a business loan and can be of two types – secured and unsecured.

  1. Secured Loan: A business loan for which sufficient insurance covering the loan amount is acquired. Mortgages, deposits, certificates, LIC insurance, and other such products can be used as security.
  2. Unsecured Loan: This type of loan is given to the borrower without the need for collateral.  At present, there are lots of money lenders that offer business loans up to Rs. 2 crore without the need for collateral, which greatly appeals to borrowers.

Eligibility for a Sole Proprietorship Loan

One needs to meet the below-given criteria to avail a sole proprietorship loan.

  • When the loan is repaid, the borrower's age must be more than 21 but not more than 65.
  • At least six months should pass without the company ceasing to operate.
  • Over Rs. 90K should be the quarterly turnover.
  • Both the business's location and its activity should not be on the prohibited list or in a restricted area.

Major Features of a Sole Proprietor Business Loan

These are the main characteristics and advantages of startup, small, and large company loans for individual owners.

Get Funds in Various Methods

Rather than receiving a pre-approved lump sum, sole proprietors who choose business finance frequently have the flexibility to use just as much as they require. This is particularly useful if you know you'll need a specific amount of money to get started and could need more later on. Money taps or business lines of credit are the terms used to describe these branches of commercial finance.

A business line of credit is one of the options that might help you better arrange your budget. You can also pay interest on the amount borrowed, rather than the whole pre-approved amount, using a business line of credit.

Read More: What Are The Best Business Loan In India 2023

Organizes Cash Flow

A single proprietorship might not always have a healthy cash flow, particularly if it is a young company or runs a seasonal enterprise. This may cause you to accumulate a few debts and unpaid income over the course of a year and not have enough money to pay them off. In situations like these, a small company loan can help you right away by stabilising your cash flow during difficult times.

Take Control of Your Company's Holdings

In order to grow their company, sole owners may think about obtaining capital from outside investors. Nevertheless, there are risks associated with this investing path. Unlike loans, which simply need the return of the principle amount, investments require a sizeable equity investment in your company in addition to the EMI.

Read More: Can I Use Personal Loan For Business?

It is possible that you will reduce your ownership interest to a minority one, depending on the number of investors you partner with. This might be problematic since you won't have as much control over the choice, particularly if you need to make a big one for your small firm. Rather, all that a small business loan requires of you is timely repayment of your EMI.

Helps You Expand Your Company

Y may use company finance for a variety of purposes, such as branching out, investing in equipment, and expanding into new markets. Thus, you obtain a sizeable sum of money at reasonable interest rates, which greatly aids in maintaining and expanding your sole proprietorship.

Read More: Can I Get a Small Business Loan With Bad Credit Score?

FAQs

What is the role of credit score in getting a sole proprietorship loan?

The applicant must need to have a good credit score to increase his likelihood of getting a sole proprietorship loan approved by the lenders.

What are the charges levied by lenders for Proprietorship Loans?

The charges related to a sole proprietorship loan are quite affordable. However, most lenders levy a one-time minimal processing charge of 3% on the loan amount along with any applicable taxes.

Within how much time the loan amount will be credited to my account?

Most lenders process sole proprietorship loan applications quickly and easily. In some cases, borrowers get the amount in their respective banks within 24 hours of getting loan approval.

The Conclusion

Are you trying to find money to grow your solo endeavour or are you seeking for a start-up company loan? Select Investkraft as your financial partner if that's the case. We provide all kinds of business financing with low interest rates, flexible payback terms, and little paperwork to individuals, partnerships, organisations, and corporations.

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