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What are the Different Types of Business Loans Available in India?

by Digant Sharma · 3 min read

types of business loans

Introduction

India is evolving into a dynamic environment that is a terrific starting point for both aspiring and seasoned company entrepreneurs. A business, on the other hand, almost always necessitates a high-value investment. According to different needs, different types of business loans are available in India.

Various Types of Business Loans

Purchase of land and factories, as well as working capital, may be required. In addition to it, basic operational costs and wages, among other things, must be covered. Different types of business loans might help to alleviate your concerns. Get Online Legal Advice from a Business Lawyer now!

We’ve listed ten different types of business loans for you to consider:

1. Temporary Loan

The most frequent types of business loans supplied by prominent lenders are term loans. The amount given through this loan is heavily influenced by the business’s credit history. This type of loan typically has a duration of 1 to 5 years. The borrower must state the purpose of usage in a loan term. It is best used to cover major outlays.

2. Types of business loans for Start-up Funding

A startup loan, as the name implies, is provided to pay the costs of establishing a new company enterprise. The borrower lacks a business vintage to back up the loan application, and his credit history is not stellar. The suitable interest rate, loan amount, and loan tenure are determined only after the lender considers the predicted turnover numbers of the firm. Before a startup loan is approved, the company must be in operation for a specified amount of time.

3. Loan for Working Capital

A capital investment loan is one that may be utilized to overcome any type of financial constraint in the business’s everyday operations. This form of loan is particularly useful when there is an unexpected requirement for cash flow to fulfill the needs of a season or production expenditure. Working capital loans are ideal for merchants, traders, manufacturers, and other businesses that import and export.

4. Property-Backed Business Loans

When a firm requires a loan of more than 50 lakhs, a loan against property is a viable option. This loan is made with the security of a property, as the name implies. The term of a loan against property spans from 10 to 20 years. To be eligible for money through a loan against property, the applicant must mortgage the property. The loan can be obtained by supplying any type of property, commercial or residential. Through the loan, the lender gives up to 70% of the property’s worth. To get these types of business loans, borrowers must first guarantee that the property being financed is not subject to any type of lawsuit.

5. Bill Financing

Invoice finance is the type of business loan that is commonly used by Small Businesses. This is especially true when there is a time gap between issuing invoices and collecting payments. The loan money is offered in exchange for the invoices. The lender is required by this loan arrangement to pay off the debt when the payment is received. It is also commonly referred to as invoice factoring or discounting of bills.

6. Financing for Equipment

Equipment finance is a viable alternative for firms that manufacture a variety of commodities. Manufacturing enterprises require high-priced equipment in order to function properly. Often, new inventions enter the market, and this is where equipment finance may assist in covering the cost. The machinery is used as collateral to obtain this form of a loan.

7. Women’s Business Loans

With the increased demand, financial institutions are increasingly giving women-specific types of business loans. To support this aim, the Government of India has created a number of initiatives to encourage women to start medium-sized and small enterprises. Types of Business loans for women are available with the greatest terms, including flexible payback terms, a quick loan procedure, cheap interest rates, Small Business Loans, and much more.

8. Commercial Overdraft

When you maintain fixed deposits with a financial institution, you might get a business overdraft. When providing this facility, the lender considers the business’s cash flow, repayment history, fixed deposit terms, and other factors. The borrower can utilize the overdraft to secure the needed amount from the fixed deposit and pay interest solely on the amount utilized. The funds can be utilized for any business-related purpose.

9. Commercial Credit Card

A company credit card is an excellent finance option for meeting short-term needs. It is a quick approach to getting cash when your company is in desperate need. Customers who use a business credit card receive several perks, such as cashback, credit points, and insurance coverage. However, because the interest rate on this type of financing is substantially greater, a corporate credit card should only be used as a last choice.

10. Merchant Cash Advance

A merchant cash advance is a capital advance granted on daily debit and credit card transactions. This is why it is critical to ensure that the company has enough cash flow to cover the repayments. When a company is performing well, the amount that can be reimbursed is significantly larger.

Why do we need Business Loans?

The types of Business loans for funding requirements of a firm that might occur at any time should be read carefully. Fortunately, you can now select from a number of options designed to meet the needs of any business kind. Before applying for business loans, it is important to evaluate your needs and ability to repay the loan.

Depending on the types of business costs and available budget, select an acceptable business finance solution from the above-mentioned list of types of business loans.

A firm, no matter how small, medium, or large, will always demand more cash flow to satisfy its daily needs. The reason for obtaining a loan differs based on whether you need money to establish, run, or develop your firm. The amount of investment is determined by the kind of your firm.

Conclusion

Business loans might assist you in meeting all of your business costs. It has you covered whether you are starting a new business or expanding an existing one. However, there are several types of business loans accessible in India, and it is critical to select one that is appropriate for your needs.

Every firm operates differently. As a result, financial institutions must provide a variety of business loans to handle various company conditions. To know more about this, consult a Lawyer now.

Digant Sharma

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Digant Sharma

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