Business Loan In Pakistan

A business loan is a kind of financial fund that helps with the business's growth expenses. Businesses can take these loans from the bank, online lenders, or credit unions. A business is eligible for a loan in Pakistan after being in the market for at least six months.

Many small businesses require loans for their business that they can take from either microfinance banks or such institutions. The small business helps the economy of Pakistan to grow and contributes to its GDP. So these loans play an essential part in the development of the economy of Pakistan.

Types of business loans:

There are various business loans offered to different businesses. It depends on the business on what kind of loan it requires for the development and expansion. The following are the types of business loans:

Term loan:

Term loans are the most common types of loans granted to the business. The word term means the loan duration from when it is issued to when it is paid off. There are two types of term loans; short term and long term loans.

(جاری ہے)

Short term loans are granted to those businesses that are new to the market or have a poor credit history for up to one-year credit term. They are often granted at a higher interest rate. In contrast, long-term loans are granted to those businesses that have been in the market for years with good credit history for a term of more than one year.

SBA loan:

SBA loans are known as Small Business Administration loans. These types of loans are for businesses that need to recover from the financial crisis. This loan is not for small businesses. Different credit unions and participating banks offer SBA loans.

This loan was created to motivate the lenders to work with those businesses that need capital for expansion or financial recovery. It is considered a high-risk loan, so to reduce the risk, the SBA holds a guarantee by the government that some part of the loan will be paid back if the borrower fails to pay it back.

Fixed asset loan:

This type of loan is a secured loan. The borrower gives an asset as collateral to the lender in exchange for a loan. The lender can acquire the asset in case the borrower is unable to pay the loan and interest. This type of loan is given to businesses to improve the company's position by progressing working capital and reducing monthly payments.

Line of Credit:

This type of loan is a similar form of debt financing. The business can take this loan when in need of funds. It is not a typical loan. The line of credit allows the business to borrow in small amounts and repay it with interest. The business can borrow the amount again till the line of credit remains open and accessible.

It reduces the risk of borrowing too much and helps the business to increase working capital as well. However, there is a limit set for the amount that can be borrowed by the business. The agreement states that the business should not exceed the set amount. Unlike a typical loan, there is no set time limit to pay the amount, but the interest should be paid monthly on the borrowed amount.

Short term business loans:

Short term business loans are emergency type loans given to the business in a time of urgency. They require frequent repayment of loans on a set time and date along with interest payment and fees. It is a one-time loan that generally offers a huge amount to the business directly.

Businesses usually prefer short term loans as it is easier to get and has lower interest rates as compared to merchant cash advances and long term loans. Businesses use this type of loan to enhance the business and compensate for any deficiencies in the expenses.

How to take a business loan in Pakistan:

Pakistan’s industry is growing rapidly, with an increase in entrepreneurial businesses. The new startups are progressing well, and this helps in boosting the economy. As small businesses are the backbone of an economy, many microfinance banks and institutions are willing to offer loans to them to help them expand and grow. The businesses can apply for loans through different sources such as banks and financial institutions.

Businesses are a crucial part of the development of the economy. To get a business loan, you need to take certain steps. These steps are as follows:

Usage of the loan:

The lender needs to know the use of the loan being asked. It will help the lender to understand your financial situation in a better way. It will also allow the lender to make the necessary arrangements for the future in the time of business crunch. Also, with this, you will know which type of loan you need.

Choosing the right category of business loan:

There are various kinds of business loans offered by banks. So it is imperative to apply for the loan according to the needs of the business. Before choosing the type of loan, the duration, and the terms of the repayment need to be considered.

Identifying the right lenders:

The next step is to find the right lenders and research the different interest rates offered by them. It is essential to find reliable lenders that can provide cheap interest rates under your needs and business type.

Conducting Risk Analysis:

Before applying for a loan, conducting a thorough profile analysis from the lender’s perspective is essential. A credit risk analysis is also crucial to evaluate your credit history and previous unsettled payments. Another critical step for risk analysis is to review the business financial statement and assets if they are involved in acquiring a loan.

Understanding the loan application:

The next step in taking a business loan is understanding the entire loan application and its requirements. It helps in getting the required documents ready and reduces the chances of the application getting rejected.

Opting for transparent financing:

The last step is gaining the lender’s trust for repayment on time. By applying for a loan against collateral or security, the lender’s payment concern is sorted and helps with the loan sanctioning process.

Advantages of business loans:

Following are the advantages of a business loan in Pakistan:

Receiving funds for business:

The most significant advantage of a business loan is getting the desired funds needed for the expansion and growth of the business. If the business is at a development stage, getting a loan is a smart choice for its growth and progress.

Maintaining business control:

By applying for business loans, the control of the business stays with the business owners, unlike borrowing equity. The bank has no business intervention while still benefits from the funds given to the business for expansion.

Ownership of the profit:

Another advantage of taking a business loan is that the business only acquires the business's profit with the loans' help. Banks have nothing to do with the profits, whereas investors expect a share in profits.

Disadvantages of business loans:

Following are the disadvantages of a business loan in Pakistan:

Difficult to qualify:

It is difficult to qualify for a business loan, especially if you have a small business. With the help of showing assets and securities, the banks are willing to give loans to businesses. It is because they have some sort of security for the repayment. Borrowers provide the bank with a guarantee in the form of assets that can be seized in the case of payment failure.

High-interest rate:

It is tough to find a lender at cheap interest rates. Sometimes the banks only give a certain amount as a loan to the business, which is not enough for their business needs.

Business loan offers from different banks:

There are different loans and schemes offered by the banks to fulfill the businesses' needs. Different banks have distinct processes and requirements for applying for a business loan.

UBL:

UBL offers the Prime Minister's Youth Business Loan scheme for the unemployed educated youth looking to enhance their business.

This scheme helps the business address their financial concerns and use them to set up a new business or expand it. The applicants should have experience and certification in that business field.

JS Bank:

The JS Banks offers the JS Working Capital Business Loan that helps the business to fulfill their working capital requirement without any hindrances. This scheme provides a 1-year term loan with financing up to Rs. 50 million at a 6 percent interest rate. This scheme is for industries like food, furniture, IT, jewelry, leather, and the packaging industry.

To be eligible for the loan, the business should have 3 years of experience in the business field. The applicant should be a CNIC holder with a bank statement of one year.

HBL:

HBL offers a Small Business Finance scheme that gives Running Finance, Demand Finance, a Letter of Guarantee, and Credit against any property mortgage. This scheme can give loans up to Rs 15 million with easy processing and good installment rates.

The borrower should be in the business for 3 years under the age of 25-65. The repayment of the loan is made either quarterly or through monthly installments.

To conclude, business loans are financial funds needed by the business for its growth and expansion. There are different kinds of loans given to different businesses for different purposes. The banks have different schemes with different criteria and eligibility. As small businesses are an essential part of the economy's development, the banks have different loans for the business to help them grow.