1 Take credit lines/working capital instead of Term Finance / EMI Based payments. – Any business needs day-to-day working capital which can be sufficed by Line of Credit. The interest of the Line of Credit is calculated on a daily basis. Whatever you use, you pay only for that. How much you use, you pay only for that. This is very opposite to term finance or EMI based finance, which requires a fixed EMI, whether you use it or do not use it. Apart from this, working capital or Line of credit has only interest attached to it. There is no pressure to repay the entire principal on a month – on – month basis. So it is very light on your cash flow. However, term finance or EMI based finance has fixed monthly commitment on your cash flow. To define your usage and take as per your requirement and save lots of interest.
2 Do not take Top-up from the same lender, if they are not proposing the enhancement as a separate Loan account. – If you take out a new loan before repaying an existing one with a lender, ensure that additional capital is given as a separate loan account (if it’s a Term finance) or else it will be treated a fresh loan account even for the existing loan on which we have already paid interest (assuming it is on a reducing balance method), which is like stabbing on our own back.
For example, a business owner who still owes Rs.10,00,000 on a loan may take out a second loan for Rs. 25,00,000. The Rs. 10,00,000 could be rolled into the new loan so he or she only receives Rs. 15,00,000 of new capital. However, if this individual is charged interest on the full Rs. 25,00,000 amount, he or she would have effectively been double charged on the outstanding Rs. 10,00,000 amount.Read More...
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