Types of Business Loans

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India is growing to be a dynamic environment that is a great budding spot for aspiring and established business owners alike. A business, however, demands a high-value investment at most times. The needs may vary from purchasing land and factories to working capital. In addition to the same, one also will have to cover basic operational costs and salaries, among several other things. This is where a business loan comes in to ease your worries. A business loan can help you fulfill all your business expenses. Whether setting up your business or building on your aspiring growth, it has you covered. However, there are different types of business loans available in India, and it is essential to pick one that is suited for your preference.

Different Types of Business Loans

Below we have provided ten different types of business financing to choose from.

  1. Term Loan

  2. Start-up Loan

  3. Working Capital Loan

  4. Loan Against Property

  5. Invoice Financing

  6. Equipment Financing

  7. Business Loan for Women

  8. Business Overdraft

  9. Business Credit Card

  10. Cash Advance for Merchants

1. Term Loan

A term loan is the most common kind of business finance that is offered by leading lenders. The amount offered through this loan is majorly dependent on the credit history of the business. Typically, the tenure with this kind of loan ranges from 1 to 5 years. A loan term requires the borrower to specify the purpose of use. It is best taken to cover capital expenditure.

2. Start-up Loan

As the name suggests, a start-up loan is offered to cover the expenditure incurred when setting a new business venture. The borrower does not have a business vintage to support the loan application and the credit history is not the best. An applicable interest rate, loan amount and tenure are decided upon only after the lender takes into consideration the expected turnover figures of the business. The business has to be established for a certain period before a startup loan is sanctioned.

3. Working Capital Loan

A working capital loan is one that can be used to overcome any kind of financial crunch in the daily operations of the business. This type of loan is especially helpful when there is a sudden need for cash flow to meet the demands of a season or manufacturing expense. Working capital loans are best suited for retailers, traders, manufacturers and other entities that undertake import and export.

4. Loan Against Property

A loan against property is a good fit for when businesses demand a loan amount of more than ₹ 50 Lakhs. As the name suggests, this loan is offered with the security of a property. The tenure offered with a loan against property ranges between 10 to 20 years. The applicant must mortgage the property in order to be eligible for funds through a loan against property. The loan can be acquired by providing any kind of property, whether commercial or residential. The lender offers up to 70% of the value of the property through the loan. To avail this type of business loan, lenders must especially ensure that the property in question is free from any kind of litigation.

5. Invoice Financing

Invoice financing is a form of business loan that is typically meant for small businesses. This is especially when the business faces a lag between raising invoices and receiving payments. The loan funds are provided against the invoices. As part of this loan agreement, the lender must clear off the debt when the payment is received. It is also popularly known as invoice factoring or invoice discounting.

6. Equipment Financing

Equipment financing is a suitable option for businesses that undertake the manufacturing of any kind of goods. Manufacturing businesses demand high-cost equipment that is essential to smoothly operate the business. Many times, there are new innovations in the market and this is where equipment financing can help serve the cost. With this loan type, the machinery is taken as collateral to secure the loan.

7. Business Loan for Women

With the growing demand, financing institutions are now offering special business loans that are curated for women. To further encourage this initiative, the Government of India has curated several schemes to encourage women to undertake medium-sized and small businesses. Business loans for women are offered through the best deals like flexible repayment tenure, fast loan process, low-interest rates and much more.

8. Business Overdraft

A business overdraft is provided upon holding fixed deposits with a financial institution. When offering this facility, the lender analyses the business cash flow, repayment history, terms of fixed deposits and more. With the overdraft, the borrower can secure the required amount from the fixed deposit and pay interest only on the amount that is used. The funds can be used to serve any purpose related to the business.

9. Business Credit Card

A business credit card makes for a great funding facility to serve short-term requirements. It is an immediate way of obtaining cash when the business is in dire need. With a business credit card, customers are offered great benefits in the form of cash backs, credit points, insurance covers and more. However, a business credit card must be the last resort as the interest rate on this kind of financing is much higher.

10. Cash Advance for Merchants

The merchant cash advance includes an advance of capital provided on the daily sales of debit and credit cards. This is why it is important to ensure that the business includes enough cash flow to service the repayments. When a business is doing well, the amount that can be repaid is much higher.

 

The need for funds in a business can arise at any given point in time. Fortunately, you can now choose from a plethora of offerings made to serve any business type. Before you apply for a business loan, it is advisable to understand your requirements and capacity to service the loan. Pick an appropriate business financial solution from the above-stated list of types of business loans depending on the nature of the business expenses and available budget.