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A Business Loan, also known as commercial loan is a type of funding that helps entrepreneurs to get hold of the resources required to grow the business. Every business encompasses many aspects that require financial support like, acquiring the location, setting up the infrastructure, obtaining the human resource, market research, operations, product promotions and other administrative expenses. With the help of this loan, a business can proceed with the planned expenditure smoothly. There are two basic types of commercial loan namely, secured and unsecured loan. A secured loan asks you to pledge collateral as a security against which the lender will give you the loan. Collateral can be anything from raw material to finished products, land and building of the business to plant and machinery. If you have the collateral for the cash advance, you can have the money at relatively cheap rates and with much more flexible repayment options. This happens because your collateral is able to stand guarantor for your repayment. Unless you repay the loan amount fully, the lender will be the official owner of the property and the title of the asset will pass on when the last installment is paid. On the contrary, an unsecured business loan is similar to a personal loan but is extended to a business. Whomsoever you borrow the money from, will have somewhat similar features like, there will be a loan protection issue, you will have the liberty to choose the repayment term and mode, you will be able to use the money for specified business purposes only.


Generally, business loans are given for the medium to long-term for the purpose of acquiring fixed assets. For obtaining a loan for his business, entrepreneur needs to prepare a business plan with - financial projections of his business, personal details of the owner, business incorporation certificate, bank account information and full credit history both personal and business. New entrepreneurs and SMEs have a tough time getting funds to develop their business. As they cannot provide adequate collateral and business forecasts, banks do not find anything worthwhile in their proposal and act skeptically, by either offering them an exceedingly high interest rate to play safe and minimize the risk that might incur or simply by turning them down. Even professionals find it exceedingly difficult to raise business loans and depend on other expensive forms of finance like leasing and hire purchase facilities for office automation requirements. Alternatively, personal loans are availed by these professionals to finance business activities as none would be willing to bet on a start up firm without any established track record. 

Group Fund is very valuable to startups who find it difficult to get their credit needs met by commercial banks and other traditional lenders. Most of the highly regulated players in the financial system are reluctant to lend to this segment, mainly due to the administrative burden and cost involved in them. The business loans extended to SMEs are too small and require close monitoring by the banking system. Hence, the cost of such loans is prohibitive and whatever may be the purpose of the loan, it has to be backed up by collateral. SME owners and professionals find this borrowing experience very frustrating as they cannot pledge their personal property to expand business activities. Small businesses which are engaged in cash and carry business model generally have free cash flow that is kept idle. This cash can be judiciously deployed in Group Funds so as to benefit from higher yield when compared with certificates of deposits offered by the banking system.

Contemporary chit funds like GroupFund are specially designed to finance unique needs of startups and growth potential businesses. As the subscribers to any fund will be fellow businessmen, it becomes relatively easier to plan the expansion activities by timing, pricing, and tapping the Group Fund at the most opportune time. As Group Funds are an instrument of saving and borrowing simultaneously, entrepreneurs will stand to gain on both counts. Whether they are leading a business or profession that generates frequent surpluses or deficits, they can still participate in GroupFund to optimize their returns and drive down the cost of funds.

 

 

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