Small Business Lending
What a small business:
First of all, let us try to understand what is the meaning of a small business. One should never be confused by the name small business as it does never mean that the business that is being carried on by a person is very small. Small business is a word that is used for defining the level of the business activity. Though, it is quite right that the activity level is not very big. This word has been defined in almost all the countries with respect to the banking needs. Thus, various banks across the globe define small business with respect to two aspects.
The first aspect is the turnover. The turnover is the total output generated by the business activity over a period of time. There are different standards in the different countries that define this output level. So, each country has specified the various levels up to which the business activity would be classified as a small business. It should be understood here that the level of the business activity specified are the upper limits and not the lower needs.
The second aspect that defines the small business is the quantum of finance that the business needs from the banks. Thus, in this aspect the financial need of the business is the main criteria for defining the small business. The bankers assess the total need of the business for the finance and then classify it as a small business accordingly. I think now we are in a position so as to move further.
Funds for the small business:
There are various ways in which the small business person can interact with the various banks in their areas. Since the small business is not very large, the requirement of the small business is also not very large.
The first and the famous type of transaction that a small business holder does with the banks is the operation in the current account. Current account is the account that is opened by a person in order to deposit the money as he receives and on which no interest is payable in the account. Thus, how much a person keeps a balance in a current account, he does not gets a single cent for it as a interest. These current accounts are opened by the small business holders in order the deposit the checks as well as the cash they receive from their various parties as a result of the business activity. This current account is also used by him in issuing checks to the various suppliers and the manufacturers. The withdrawals are also made in this type of accounts when business holder needs money. Thus, it can be said that the current account is basically used as a parking account by the small business holder.
Apart from the current account, there are many other types of transactions that are made by the small business holders with the bank. We shall discuss these all in next part of our transactions.
Small businss lending by banks:
Apart from the current account, there are many other transactions that are carried out by the small business holder. The need of finance is there for the small business also. So, the small business holders obtain many types of the credit facilities from the banks in order to carry out the different business activity. All such types of finance that is available from the banks are given below:
The overdraft facility: The overdraft facility is provided by the banks to the small business holders in their current accounts. In this type of facility, the small business holder is allowed to take the amount up to a certain level as determined by the banks according to the credit rating of the small business holder and also as per the security provided by the small business holder. This is the most common type of the credit facility that is availed by the small business holders across the world because it requires very less documentation, is easily available and no periodic statements have to be deposited, as in the case of other types of finance that are available from the banks. Also, the amount of finance needed by the small business holders is generally small and the overdraft facility being provided by the banks is the best for them. A small business holder has to pay some amount of interest on the amount utilized.
The cash credit facility: This is another type of facility that is available to the small business holder from the bank. In this type of facility, a person gets a limit on the basis of the stocks maintained by him. He is given a limit up to which he can easily withdraw the amount and can easily deposit the amount also. Thus, this type of the credit facility is provided by the banks in order the help the small business holder to meets his temporary requirements. The interest is applicable in these types of accounts also and there are some periodic statements that have to be deposited by the small business holder. These statements differ from bank to bank and from one country to another.
Term loans: Term loans is the another type of facility that is available to a person who is managing small business. Term loan, as it is self explanatory, is given for a definite time and a person has to repay it by means of installment within a definite time period. Term loan is always given for acquiring the fixed assets like the plant and machinery etc. This type of loan is given only once and the small business holder repays it as per the schedule.
Other facilities: There are many other facilities that the small business holder can get from the bank these days. ATM is one such important facility. All the small business holders are being issued ATM cards in their overdraft accounts. Thus, they can easily take the money without visiting the bank premises. It allows him to make payments all over the world without carrying cash with him. The other facility that is being provided by the banks to the small business holders is the bank guarantee, which they need to provide to their suppliers. Apart from these, the small business holders are also allowed a waiver up to some extent in the collection charges of the bank. Internet and the 24 hours help line are the other facilities that are being enjoyed by the small business holders.
So, Bank there for lending:
Thus, it can be easily said after the above discussion that the small business holder can easily get their all the financial needs fulfilled from the banks. The various facilities are easily available now a days and a small business holder can really look forward for growth by getting the necessary finance from his bankers.
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