India is a country of small and medium enterprise entrepreneurs and the key requirement of each and every business to keep it running is cash flow. However, not all businesses are designed to have a perfect cash cycle and the unpredictability of markets impact the cash flow of businesses. In this case, what comes handy is business loans offered by various financial institutions of India. Here we will see various options an entrepreneur has, to secure business loans. Depending on the situation or requirement, one may choose the best option available.
Secured Term Loans
Term Loans have a fixed tenure and while a lump sum cash amount is received upfront, it has to be paid back at regular intervals till both principal and interest are paid off. Secured term loans need a collateral guarantee to be provided by the entrepreneur to secure the sum. This type of loan is usually used for starting a business or expanding it at a later stage.
Unsecured Term Loans
Just like Secured Term loans, here also the sum is to be returned in a stipulated period of time but in this case, the financial institution lends the sum without any guarantee. In this case, the business performance and credibility of the entrepreneur are considered. Usually the interest rates are high and the term for lending is shorter, here. This type of loan is usually taken for any sudden cash flow demand of business that is not being met by current cash cycle.
Many banks offer overdraft facility to businesses, which means that for a short period of time, you can use more amount of money than your bank balance and repay the bank as soon as you have money to pay back the entire sum. Usually overdrafts have heavy interest rates and are not recommended to be used unless there is a business emergency.
This method of securing loan is usually used by businesses that supply goods or services to companies. This loan is generated against the purchase order or invoice raised by the business and is paid back as soon as the payment is made by the company issuing the purchase order. Interest rates in this case is higher than secured loans but lower than overdraft or unsecured loans.
Letter of Credit
A Letter Of Credit or LoC is used against high value transactions. In this case, the buyer and seller usually do not know each other and depend on bank’s credibility for the transaction. The bank issues the letter of credit against the transaction value.
Business Loans offered on Finserv MARKETS are simple, easy to apply for and get money credited to your account in 24 hours. If your enterprise needs funds, apply for a business loan today.
Also, read about what is SME Loan and its benefits.