Introduction
The Indian banking system is going for a rapid revolution, which is popularly based on the interests of lenders and loan receivers. The lenders business is trying to get more out of the market and industry as much as they can stomach or even trying to extend their vaults to increase their scale. Below, it is the list of some of the types of Business loans which is available in India:
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Term Loan
One of India’s most common types of business loans that leading lenders offer is a 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. Generally, the loan tenure for a term loan is anywhere between 1 and 5 years. It is best taken to cover capital expenditure. The loan amount sanctioned depends on the credit history of the business. When you apply for such a loan, you need to mention the purpose of use. The most efficient use of a term loan is for covering capital expenditure. A bank term loan lends you the money that you need upfront for your business needs. You will have to repay this amount to the lender along with the interest calculated on the principal amount. The interest rates associated with these loans are also low.
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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. Therefore, to assess the individual’s eligibility for a business loan, lenders consider the borrower’s personal credit profile apart from the company’s. To decide the loan amount, tenure, and applicable interest rate, lenders consider the current turnover figures and other financials. Proof of business existence and registration is to be submitted at the time of the application. The business has to be established for a certain period before a startup loan is sanctioned.
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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. The end use of this type of business loan can be for managing business cash flow, paying salaries, increasing inventory, purchasing raw materials, investing in machinery/equipment, etc. The loan is beneficial when a sudden need for cash flow arises. Traders, retailers, manufacturers, and other entities involved in import and export can avail of a working capital loan. The repayment tenure for a working capital loan is short, up to 12 months. Moreover, it is a collateral-free loan, so the borrower does not have to pledge any collateral or asset with the lender.
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Loan against Property
As the name suggests, this loan is offered with the security of a property. A loan against property is a good fit for when businesses demand a loan amount of more than ₹ 50 Lakhs. 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. There is no restriction on the type of property the borrower can offer as security. It can be both residential and commercial. The lender generally provides a loan equivalent to 70% of the property’s value.
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Invoice Financing
Invoice financing is a form of business loan that is typically meant for small businesses. It is also known as invoice factoring or invoice discounting. This is especially when the business faces a lag between raising invoices and receiving payments. The loan funds are provided against the invoices. The loan amount the financial institution can provide is up to 80% of the invoice amount. After the business receives the payment, it repays the loan amount as per the agreed-upon interest rate and tenure.
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Equipment Financing
One of the types of business loans in India ideal for manufacturing businesses is equipment financing or machinery loan. 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. For purchasing this expensive equipment, companies require equipment financing. Such a loan is specific, where lenders take the equipment and some other security as collateral. Compared to a term loan, the interest rates for machinery loans is generally lower.
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Business Loan for Women
Business loans for women are offered through the best deals like flexible repayment tenure, fast loan process, low-interest rates and much more. 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. Some banks and lenders offer a separate financing scheme for women entrepreneurs.
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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.
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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. Business credit cards provide customers many benefits, such as credit points, cash backs, insurance covers, etc. However, a business credit card must be the last resort as the interest rate on this kind of financing is much higher. Therefore, a business credit card should be the last resort.
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Cash Advance for Merchants
The merchant cash advance includes an advance of capital provided on the daily sales of debit and credit cards. The borrower needs to return the advance with a part of the daily credit sales. When a business is doing well, the amount that can be repaid is much higher. It is vital for businesses opting for this type of business loan to maintain sufficient cash flow for the repayments. The benefit of a merchant cash advance is that the borrower has to pay according to the daily sales.
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Gold Loan
This type of loan can be availed against things like gold ornaments, gold coins, and gold jewellery. In case of a Gold Loan, you get the amount immediately in exchange for your gold deposits. You can borrow a maximum amount of up to Rs.20 lakh with Gold Loans in India.
Conclusion
Choosing a business loan based on your business profile and requirement is best. After you learn about the different types of business loans in India, you can decide the type of financing most suitable for your venture. Business loans are available at nominal and attractive interest rates with flexible and easy EMIs. Most banks and financial institutions offer business loans. The application process is simple.
Other related articles which can be accessed on Investor guruji are Money Purchase Pension Plan and Bancassurance.
