We live in a time where innovation is leading the fintech industry. As we are inching towards a complete “cashless” society, there has been a considerable rise in flexible financial products. One of these is Flexi Business Loans that are designed for the businesses of modern times that seek flexibility in credit as well as repayment.
What is a Flexi Business Loan?
A Flexi Business loan aka overdraft is a loan in which rather than disbursing a fixed amount to you, the lender sanctions a limit akin to a credit card limit. You are allowed to withdraw as much amount as you need as long as it’s below the limit. So, in this way, you don’t have to pay interest on the full amount but only on the amount that you withdraw.
How does it Work?
Since most of the flexi business loans are offered online, you can just go to the website of the financial institution of your choice, create an account, and send the details of the credit limit you want. You will be contacted by a customer executive and if your account is approved, you can just submit a few KYC documents for verification. That’s it! You can now withdraw funds as per your requirements from your account.
When you get a flexi loan, an interest rate is charged just like regular business or personal loan interest rate. However, one big difference between the two is that in case of flexi business loan, the interest rate is charged only on the amount you withdraw from your account but in the case of a standard business loan, the interest is levied on the entire loan. This means that in flexi business loan, you pay interest only on what you take.
The following are some of the biggest advantages of flexi loans:
It’s not easy to get a business loan for low CIBIL score. However, flexi business loans are easy to get as the lenders are more forgiving than traditional banks that only offer traditional business loans. Plus, you don’t have to offer collateral either.
Many flexi business loans allow you to increase or decrease your EMIs from time to time. So, when business is slow, you can make your EMIs smaller and when you are earning huge profits, then you can increase the EMIs to make repayment faster.
No Prepayment Charges
Unlike many other business loans, flexi business loans usually don’t have prepayment charges. So, if you receive a huge purchase order or sell business equity at an attractive price, then you can repay your entire loan in one payment and be done with it without worrying about paying any fine.
Understanding the Differences
Getting a loan has become extremely difficult today because traditional banks are struggling with massive non-performing assets (NPAs), especially in India. Plus, it doesn’t help that personal loan interest rate and business loan interest rate has touched new heights. Due to reasons like these, new-age financial products like flexi loans have become the best solution for the SMEs in the country.
A flexi loan is easily accessible online, requires next to no paperwork, and gives you a variety of repayment options that you can customize on the go as your business grows. Another big advantage of these loans is that you can get a loan for low cibil score too which otherwise was simply unheard of.
Let’s consider two events:
You obtain a traditional business loan of Rs.10 lakhs (term: 4 years, interest rate: 14%)
You obtain a flexi loan of Rs. 10 lakhs (term: 4 years, interest rate: 14%)
Say, you actually utilized only Rs. 5 lakh of the amount. So, in the flexi loan option, you will need to pay the interest only on Rs. 5 lakh which would be 1.55 lakhs in 4 years. However, in the traditional loan option, you would need to pay interest on full loan amount which is Rs. 10 lakhs, and it would be Rs. 3.11 lakhs i.e. 1.55 lakhs extra for an amount that you didn’t even require.
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