Business

How can a Shop Loan be effectively used?

Whether you are opening a new retail shop or planning to expand the shop that you already own, the first thing that comes to anyone’s mind is to apply for a small business loan to materialise your dream venture. Once you have decided to apply for a shop loan, the options are many. No doubt, there is a considerable amount of work involved in securing the loan. But the task does not end there. The success of the shop loan that you secured depends on how effectively you make use of it.

Do the groundwork before applying for a shop loan

A shop loan can be used for various purposes. So, before applying for a shop loan you have to meticulously plan and work on how much funding is required and how much of amount needs to be allotted for different purposes. You cannot follow “the one size fits all “approach when it comes to acquiring shop loans. There are different types of shop loans available in the market that caters to the specific purpose of the business. The different types of loans available for the shop owners.

Types of loans

1 Working capital loans
2 Term loans
3 Equipment loans
4 Inventory loans

Who provide shop loans in India?

Having understood the common types of shop loans available for businesses, the various financial institutions that provide small business loans are banks, government institutions, and NBFC’s including new age online lenders are actively catering to the retail segment to fulfil their working capital requirements. However, bank loans are time taking and involve huge amounts of paperwork. Online lenders have revolutionised the lending space by incorporating advanced technology and hassle-free processing procedures.

How to use the shop loan effectively?

Now that you know, the different types of loans available to shop owners and also the various options of sourcing a shop loan, the next step is to figure out how you will use the inflow of cash strategically. In other words, how you will put that money to work to fetch optimum results.

Here is the list where your loan amount can be put to use:

  • Purchasing of inventory
  • Purchasing machinery
  • Computerising the functions
  • Marketing your products
  • Day to day expenses
  • Paying back the old debts
  • Hire employees
  • Shop expansion

Purchasing of inventory: As a retail shop owner, you need to stock enough inventory to offer to your customers whenever demanded. Stocking of inventory requires money which can be funded through taking shop loan. You may also need to raise a loan if you wish to offer your products at discount rates. Discount sales attract a higher number of customers which means higher inventory. As you grow your business, you may also use your shop loan amount for introducing a new line of products.

Purchasing machinery and equipment: You may require modern equipment and small-scale machinery to upgrade your shop’s premises. Installing modern equipment also reduces the need to have higher manpower. Shop loan is the best way of modernising your shop to attract more and more customers.

Computerising the shop: Shop owners who maintain their accounts manually and plan to computerise their functions can avail a shop loan to purchase computer systems and software installations.

Marketing and advertisement: With increased competition, even a small retail shop has to indulge in considerable marketing and advertisement strategies to push up their sales. They have to constantly come up with offers and discount sales to keep attracting customers. So, a shop owner can utilise the funds availed under a shop loan for advertising and marketing purpose.

Working capital needs: working capital is an important financial component of the business. It is required to take care of the day to day expenses of the business-like wages, accounts payable, inventory, shop maintenance, power bills, etc. Many customers make purchases on credit which leaves a dent in working capital reserves. So, most of your operational expenditure can be covered by using a shop loan for smooth running of the business.

Seasonal fluctuations: if you own a shop that sells seasonal products you might possibly be facing the cash crunch during offseason. A short-term shop loan will come to your rescue at such times to cover your day to day expenses and payments. You can also utilise a shop loan to provide for future business growth during the offseason.

Refinancing the old debts: you can effectively use the fresh shop loan you secured to refinance the old debt with higher interest. By replacing the ongoing debt of higher interest rates with more economical shop loan, you will reduce the EMI burden and also will be able to infuse some cash into the business.

Hire employees: shop loan can be used to increase the headcount in your shop for the smooth running of the business. Efficient staff always translates into better business and increased sales.

Shop expansion: This is probably the best way of putting your shop loan to use as expanding the business is every shopkeeper’s dream and it requires flowing capital for the business to flourish. Business expansion means additional inventory, salaries to the staff, marketing campaigns and much more. All of these can be financed through shop loans.

These are some of the effective ways of using shop loan. Before you actually apply for the shop loan, make sure you meet the basic eligibility criteria to secure the funding. Here is a brief note on eligibility and documents required

Eligibility

  • Only the citizens of India can apply for the shop loan
  • The age of the applicant should be at least 21 years of age at the time of applying for the loan.
  • The business should be in operation for a minimum period to be eligible for the loan
  • Each financial institution has a specific requirement as far as the minimum turnover is concerned. The specified turnover for a particular period preceding the application should be produced
  • Make sure the business for which loan is being applied is not blacklisted.
  • Previous two years financials like bank statements, Profit and Loss accounts, and the balance sheets are required to prove the viability of the business model.

Documents required

  • Aadhar card
  • PAN card
  • Address proof and ID proof
  • Incorporation certificate and Profit and loss statements, the balance sheet of previous years to prove the continuity of the business.
  • Copies of ITR filed for the last couple of years