Types of Business Loans and Requirements
All you need to know about the types of Business Loans and Requirements
Table of Content
A business loan is a short-term fund that is only intended for business purposes and is provided to businesses like partnerships, Private Limited Companies, and sole proprietorships also self-employed individuals. A business loan maybe used for a variety of commercial purposes, including branch expansion, equipment purchases, and maintenance of ongoing operations. Business loans are often provided based on the annual revenue of the company and its two or three years minimum of tax returns.
What is a business Loan?
A loan that is specifically intended for business needs is known as a business loan. In order to pay for expansion costs or cover startup costs, enough fund is needed by businesses. Businesses seek out business loans to get the funding they want. A business loan is a debt that the company must pay back according to the terms and conditions of the loan. There are 10 types of business loans considered in India:
- Term Loan : Term loan is the most popular form of business financing that top financial institutions provide. The loan amount depends on the credit history of the company. This type of loan typically has a term of 1 to 5 years for unsecured loans or up to 15-20 years for secured business loans. It should ideally be used to cover out capital expenses.
- Start-up loan : A start-up loan is provided to pay for the costs associated with establishing a new firm. The applicable interest rate, loan amount and duration is decided only after expecting turnover statistics of the firm. The business must have been in operation for a specified amount of time.
- Working Capital Loan : A working capital loan can be used to help a business through any form of financial difficulty that arises during normal business operations. This loan is beneficial when a rapid increase in cash flow is required to cover seasonal needs or production costs. Retailers, traders, manufacturers, and other businesses that engage in import and export are the greatest candidates for working capital loans.
- A loan against property for SME : A loan against property is a smart option when businesses need loans of more than 50 Lakhs. A property is used as security for this loan. A loan against property has a tenure of between 10 and 20 years. The applicant must mortgage the property to be eligible for financing through a loan against property. Any form of property, whether commercial or residential, may be used to safeguard the loan. The lender provides a loan for up to 70% of the property’s value. Lenders must make sure that the subject property is free of all pending litigation before approving a business loan.
- Invoice Finance : Invoice Finance is a type of company loan which is primarily designed for small firms. This is particularly the case if there is a delay between the business issuing invoices and receiving money. The invoices serve as an evidence for the loan funds.
- Equipment Financing : Businesses that manufacture any kind of goods can benefit from equipment financing. Manufacturing companies need expensive machinery in order to run their operations efficiently. New developments are frequently hitting the market, and in these cases, equipment financing can help cover the cost. This sort of loan uses the machinery to secure the loan.
- Business Loan for Women : In response to the growing demand, financial organizations are now providing women-specific business loans. The Indian government has created some programs to support this initiative and encourage women to start small and medium-sized companies. The best offers for business loans are provided to women, including flexible repayment terms and quick loans, low interest rates and much more.
- Business Overdraft : Holding fixed deposits with a banking institution qualifies you for a business overdraft. Lender analyses business cash flow, repayment history, fixed deposit periods, and other factors before extending this loan. The borrower can use the overdraft to draw the necessary amount from the fixed deposit and only pay interest on the amount actually used. Any industry purpose may be served by the funds.
- Business Credit Card : A business credit card is a good funding source for urgent concerns. When a firm is in acute need of money, this is a quick way to get it. Customers receive great benefits from business credit cards in the form of cash backs, credit points, insurance coverage and many more. Though the interest rate on this type of financing is significantly higher, using a corporate credit card must be the last option.
- Merchant Cash Advance : The merchant cash advance consists of an advance of capital made on the daily debit and credit card transactions. This is why it’s important to ensure the company has enough cash flow to cover the repayments.
Also Read: SIDBI Make in India Loan for Enterprises
In conclusion, businesses seek out loans from lenders when they need financial support. Businesses and investment projects require funding to operate. Bank loans are frequently used by businesses as a suitable part of their financial structure.
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