Nobody could have imagined how incredibly devastating 2020 would turn out to be. The coronavirus crisis was quickly escalated to the status of a pandemic, and it has only matured from bad to worse. The entire world was anticipating a virus-induced recession, which prompted many central banks to introduce rate cuts.
The Indian economy was in shambles, and businesses were feared to run out of money soon. It was amidst this turmoil that our Hon’ble Prime Minister advised the countrymen to adopt the “vocal for local” outlook. This would mean being vocal in our support for the local, or “Made in India” goods and service providers.
This approach was meant to help businesses—especially small business and startups—to survive these testing times. Nonetheless, the economy is not expected to recover anytime soon, and one must look at other alternatives for cash inflow.
Loans—the way forward?
The nationwide lockdown has led to reduced profit margins for businesses in every sector. Consequently, this has led to various cost-cutting measures such as lay-offs and corporate restructuring.
The Reserve Bank of India has acknowledged the seriousness of the situation with a slew of rate cuts. Though the rate cuts have inconvenienced Fixed Deposit investors, they aim to preserve the liquidity of the market.
Availing a post-pandemic business loan will be beneficial for you. Let us look at the reasons why.
Reduced interest rates
Interest on repayment is common for every loan. Business loan interest rates may range from acceptable to exorbitant, however, depending on the type of loan. Since the pandemic has caused unforeseen havoc, it is expected that loans will become more affordable. The pandemic and post-pandemic period could be characterised by reduced interest rates to attract loan seekers.
People have been forced to deplete their resources to provide sustenance for themselves and their family. Lenders will have to remember the great penury that is plaguing businesses. Thus, the tenure for repayment will have to be stretched out, while interest rates become more considerate.
Tax benefits of business loans
The Income Tax Act, 1961 offers various benefits to any borrower repaying a loan. Any money you spend as interest on a loan, will be considered as expenses and lead to tax deductions. Furthermore, EMIs on startup loan repayment is also permissible deductions.
All income taxes are paid on the net income. Incidentally, all expenses are deducted from gross income to arrive at the net income. Incidentally, repayment of the principal sum borrowed by you is not deductible, only the interest paid is.
Nonetheless, you must be aware of the processing charges, interests payable, and other charges before applying for any loan. Read up on the loan offer document. Use a business loan EMI calculator to determine the monthly instalments payable before applying for a loan.
Irrespective of whether you are a conglomerate or a startup, loan capital is an important facet of your debt-equity. Looking at the current situation, a loan seems to be the perfect elixir for your business woes.
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