An installment loan gives the borrower a fixed amount of money that needs to be repaid over a pre-defined time through regularly scheduled payments. Each installment payment includes the repayment of a portion of the principal amount that was borrowed and the interest. Both an individual borrower and a business can ask for an installment loan. This type of loan is more economical for an individual than a credit card and a payday loan. An installment loan can also be very good for a business. It can spur business growth.
The variables that determine the size of the repayment include the amount you have borrowed, the rate of interest, and the loan term. The repayment schedule is typically monthly. The amount to be repaid usually remains the same throughout the repayment term, which makes it easier for the borrower to plan and budget.
However, there are some installment loans with a variable interest rate, where the rate is adjusted according to the market conditions.
Business Installment Loan
Businesses of all sizes can also take an installment loan. It is often taken to overcome a short-term financial crisis. However, a business can also invest the money for growth or another reason. The loan term can be only for a few months or it can be for as long as 5 years.
These loans are issued based on the business’s credit standing. They can also be offered based on a standing order. The business can then use the funds to buy stock or raw materials and sell to fulfill the order. The profit earned can then be used to repay.
Features and Advantages of a Business Installment Loan
- Hassle-free and quick loan processing
- No security or collateral
- Fixed re-payment installments
- Less likelihood of a default as the repayment amount and term are both regular and predictable
- A business with a good credit history can get a higher amount
- The loan amount can be used for asset building, acquisition, working capital requirement, modernization, and expansion
Increases Business Cash Flow
A business needs to have a decent cash flow for growth. It is the lifeblood of a business. Many businesses, however, especially small businesses often face a cash flow problem. A delay in payment processing is a common problem that can cause this problem. According to a report published by Forbes, the average small American business has more than $50,000 in outstanding receivables.
It is not the lack of funds that makes small businesses struggle. The problem is the lack of available funds for immediate use. An installment loan can easily solve this problem. It is an excellent way to ensure expansion and growth, regardless of the industry.
A business may even provide installment loans to its shoppers to ensure that it receives payment. The shoppers can then manage their purchases through monthly payments. They will find it easier to repay, thanks to affordable monthly payments.
Invest in Your Business
Sometimes a business needs a fresh investment for growth. Perhaps you want to increase your production capacity or buy new machinery and equipment to meet an existing order. You may have to purchase new land to spread your wings. Expanding and growing is often a problem because of the lack of liquid funds and finding an investor may not be the right approach as you will have to give out a stake or a percentage of the profit.
Getting an installment loan can be the right solution. For a small monthly payment, you can easily get the funds you need to finance the growth. It is a practical and easy way to make the business grow and reach the next level.
Imagine a local cake shop. An installment loan can help it open a shop in a new location and expand the shop’s reach. It can build the brand and attract new customers.
Here’s a second scenario. Consider a tech startup planning to come out with an innovative new product. With the loan, the startup can buy essential equipment without making a significant upfront investment, thereby preserving money for research and development. As the startup grows, the fixed payments towards the loan will become a smaller fraction of its expanding revenue, which will demonstrate the role of the loan in facilitating sustainable growth.
Capital Preservation
Of course, the business can fund the growth from its reserves as well. However, this will only deplete the reserve. Instead of depleting the reserve, the loan will let the business retain its chest and use the money whenever there is an unforeseen situation or challenge.
Credit Building
You will build the credit history and rating of your business every time you make a punctual payment. Over time, this will improve the reputation of your business, which will pave the way for a more favorable borrowing term. Every business needs financing for growth. So, you will find it easier to approach borrowers for a larger amount of money when there is a need. Here’s a guide to a credit builder loan.
Final Thoughts
Access to capital through an installment loan can fuel growth initiatives, such as expanding product lines or entering new markets, which can lead to increased revenue streams. There are many ways in which such a loan is crucial for a business. It can help the business ride over a crisis and also fuel growth and reach new heights.
