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The Different Types of Business Loans for Women Entrepreneurs

The Different Types of Business Loans for Women Entrepreneurs

 

Introduction


From politics and sports to the business world, Indian women are busy breaking the glass ceiling and smashing gender stereotypes. They are no longer seeking validation from men, rather they are occupied scripting their own success stories. A massive example of this is the Sixth Economic Census* released by the Ministry of Statistics and Programme Implementation last year, which stated that women constitute around 14% of the total entrepreneurship i.e. 8.05 million out of the total 58.5 million entrepreneurs. Some may say that is a small percentage but given how women have to function in a male-dominated environment, these numbers are worth celebrating.

(*Source : http://pib.nic.in/PressReleaseIframePage.aspx?PRID=1569906 )
 

A Guide to Business Loans for Women


As we know, no business idea takes shape without capital and therefore, businesswomen awaiting funds to either start or expand their own firms should consider taking a Business Loan. Instead of being turned down by investors who can be gender-biased, opting for Business Loans will give them the chance to prove their mettle. From education to remuneration, archaic setups have made the women suffer grave inequalities in the past. However, things are changing; today every time a dynamic woman tries to break the shackles and give her entrepreneurial skills a shot in the arm, leading financial institutions come forward to help by offering loan schemes specially designed for women. The key features of these business loans include lower interest rates, low or no processing fees, no requirement of collateral and long repayment tenures, among other things. Let us take a closer look at the kind of loans that female business owners can opt for and the benefits they can get.
 

Types of Loans

 

  • Working Capital Term Loans

    These loans are for immediate expenses and not for buying assets or making investments. These loans make sure that your operating costs such as wages, rent, etc. are met when your payment from clients is due.
     

  • Working Capital Demand Loans

    Also known as, Revolving Working Capital Loans, these loans finance the day-to-day operations of a firm. This type of loan is highly flexible and is quite similar to the business line of credit except that it has a fixed date of repayment. It suits the unique cash flow patterns of the business as the business owner can withdraw a particular amount of money required.
     

  • Secured Term Loans

    These loans are sanctioned when the borrower puts an asset on the stake. In banking terms, the asset (house, car, jewellery) is called collateral. The lender can sell the asset to recover his money in case of a default. Secured Loans provide higher borrowing limits, lower interest rates, and extended repayment period because of the presence of the collateral that decreases the lender’s risk. These loans are ideally used for funding purchase of land or building, or for construction and renovation purposes.
     

  • Project and Acquisition Financing Solutions

    As the same suggests, these loans are meant for expansion plans. Here the projected cash flows of the business are as important as the present balance sheets of the project. These loans are also secured in nature as the project assets act as collateral.
     

  • Medical Equipment Financing

    If the business owner is a medical practitioner and wishes to start a clinic or a diagnostic centre, these loans help in the purchase of standard medical equipment like CT Scanners, Sonography Machines, MRI Machines, X-Ray Machines, and other medical equipment.
 

  • Machinery Loan

    Factories need machines that give maximum production with minimum utility requirements like power consumption, manpower engagement, installation cost, etc. These loans with higher limits are meant for buying machines. When one buys a machine or equipment with a loan, the collateral can be the machine itself.  
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Features of these Loans

 

  1. Quick & Hassle free Approvals

    If the applicant is an Indian resident above 18 years of age and meets other eligibility criteria, he/she will get the loan with the whole process from application to disbursal being done in a hassle-free manner. It takes merely 48 hours to sanction the loan. 
 

  1. Low Interest Rates

    Financial institutions understand that there are several roadblocks when a woman decides to run her own business. To make their path slightly smoother, the interest rates charged from women have been kept slightly lower.  
     

  1. Easy Documentation

    Again, gone are the days of standing in queues to get the whole documentation and verification done. Everything is done online with financial institutes asking for only the most important documents
     

  1. Flexible Repayment Tenure

    Depending on the type of loan, its amount and collateral, tenures can range from 12 months to 96 months.
     

  1. Prompt Customer Service

    In case of any doubt, one can reach out to the lenders via call or email and they immediately resolve discrepancies.
     

  1. Fair and Transparent Services

    There is no doubt that everything is done in a transparent manner with no hidden charges or conditions.
     

Eligibility and documentation

 
  • You should have a running the business for at least 3 years.
  • You should have made profits as per industry norms and should have a satisfactory credit score.
  • As far as documents are concerned, you needs to furnish audited financial statements and projections of the last three years along with detailed profiles and KYC of Directors and Partners in the company.
  • The identity, age, residence proofs, company constitution documents, and registration certificates will also be checked during the verification process.
 

Considerations When Applying For A Business Loan For Women

 

  • Lack of financial records

    When you submit your request for business funding, the lender may request a balance sheet and other important financial details, depending on the amount. If the sum is significant, you may be required to provide audited financials. Failure to provide these documents would result in your loan rejection.
     

  • Lack of blueprint

    If you have a business term loan, your lender will not ask you how you intend to use the funds. However, they are interested in learning about your business model, revenue and sales projections, and future projects in which you wish to invest.
     

  • Business type

    The industry in which your company operates is critical too. Different lenders make it clear on their websites which sector they serve. Make sure you check this before applying. 
     

  • Business Credibility

    When you apply for a loan, the first thing your lender looks at is your creditworthiness. They investigate your previous debt repayment behaviour, the number of ongoing loans, hard inquiries, and a few other factors. Only if all of the parameters are found to be satisfactory is the approval granted.
     

  • Debt coverage ratio

    It represents the portion of your revenue that goes towards loan repayment. If your company's debt coverage ratio is over 50, you won't receive approval.
     

Conclusion


Women entrepreneurs are making inroads in various industries today and giving a tough competition to their male counterparts. All business owners need funding for various reasons and therefore, to keep growing, women entrepreneurs should be aware about the different types of business loans available in the market and how to use them for their benefit.
 
Disclaimer: This post was first published on 5th July 2022 and has been updated for the latest information, freshness and accuracy.

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Did You Know

Disbursement

The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.

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