Different types of Business Loan

Be it a large or a small business, none can flourish without adequate funds. Sufficient funds can make day-to-day operations like salary, operations, and marketing seamless. You can benefit from funds to expand your business by purchasing land and factories, or high-end equipment, among other assets.

But where do you get the required funds from? Your answer is business loans!

Business loans are easy to get, can be customised per your specific requirement, requires minimum documentation and provides flexible loan tenure. 

However, there are various types of business loans in India, and it is critical to select one appropriate for your needs.

Read this article to learn about the various types of business loans in India.

1. Working capital loan

As an entrepreneur, you can use working capital loans to meet your daily business requirements. 

You can avail of this easily accessible, simple financing loan to pay for extra expenses, employee salary, mortgage payments, rent, marketing expenses, utilities, inventory purchases, or other short-term financial requirements. 

Additionally, you can use the fund provided by the working capital loan to fund your channel partners, such as distributors and dealers. And also to acquire raw materials for your firm.

The best part about this business loan type is that you do not need to provide any collateral to receive your loan.

2. Term loan

Financial institutions offer term loans to help you cover all of your company’s financial needs seamlessly. Term loans are often known as instalment loans, as you are required to pay fixed EMI or instalments for the entire loan tenure. 

Be it funding your company’s expansion, modernising your workplace infrastructure by investing in cutting-edge technology, or boosting your Research and Development (R&D) department, a term loan is your answer.

Additionally, acquiring a term loan is easy as you only have to provide some essential documents like annual turnover, credit score, business experience, etc.

3. Equipment financing loans

Equipment financing loans are specific. They help your business grow by providing the funds for new equipment, technology and assets. For this reason, they are also known as machinery loans, that help you acquire machines needed for enhanced production. 

This loan can also be used to upgrade existing machinery and equipment. The loan amount, interest rate, and repayment period each financial institution offers usually vary.

4. Letter of Credit

A letter of credit is a credit limit commonly used in international trading businesses. With this, a financial institution or lender provides a financial guarantee to businesses that operate in international commerce. 

But why is it needed? It is due to the risks like distance, unknown suppliers/dealers, and different rules and regulations associated with foreign transactions. 

This letter guarantees that the seller will be paid if specific requirements are met. Furthermore, even if the buyer cannot pay, the financial institution will pay the seller. A letter of credit is very customisable, and both trading partners can include their terms and conditions.

5. Loan against property

Why let your property sit idle? You can use it to get a business loan. With a loan against property, you can get a loan of up to 70% of the value of your property. Not only that, but you also get easy repayment options, making it perfect for all your business expansion requirements.

All you have to do to avail of this type of financing for business is offer a property against it as security. With this, you can instantly get ample cash without losing possession of your asset.

6. Point-of-Sale (POS) Loans

Merchant Cash Advances, or POS Loans, are ways businesses pay a set amount in advance to suppliers via daily or future debit or credit card transactions. 

Despite the higher interest rate, businesses choose POS since it provides liquidity. It gives you quick cash, but you must repay it with a portion of your business’s daily credit and debit card sales.

The repayment option is linked to credit or debit transaction POS devices at grocery stores, shopping malls, retail shops, and supermarkets. This enables the borrowers to easily pay back the loan and interest.

7. Invoice financing loans

The invoice financing or invoice factoring loan is particularly targeted towards small businesses. The possibility of a small business having irregular cash flow is pretty high. And thus, a supply of money without any collateral can be a blessing. This is what invoice financing offers.

This type of loan provides money to small businesses between the time the businesses generate invoices and receive client payments. Loan funds are issued against invoices; therefore, the amount lent is determined by the amount raised in the invoice. 

This allows firms to restore cash flow without waiting for the client to pay the invoice amount. 

8. Business Hybrid Term Loan

A business hybrid term loan is a type of business loan that is dependent on collateral. Only when a company has fixed deposits (as collateral) with a financial institution can it obtain a business hybrid term loan?

Before lending money, the person’s full background is verified, and the amount is also finalised on that basis. Before issuing the loan, the financial institution investigates factors such as business cash flow, repayment history, fixed deposit terms, etc. 

This type of loan allows the borrower to withdraw the required amount and pay interest solely on the amount used.

9. Business loans under government schemes

The Indian government has launched several loan schemes to help people achieve their financial goals. These schemes help people specifically involved in the business, service, and manufacturing sectors. 

A few of these schemes include the following-

·         MSME Loan Scheme in 59 Minutes

·         National Small Industries Corporation

·         Pradhan Mantri MUDRA Yojana (PMMY)

·         SIDBI Loan

·         Credit-Linked Capital Subsidy Scheme

Be it a large or a small business, none can flourish without adequate funds. Sufficient funds can make day-to-day operations like salary, operations, and marketing seamless. You can benefit from funds to expand your business by purchasing land and factories, or high-end equipment, among other assets.

But where do you get the required funds from? Your answer is business loans!

Business loans are easy to get, can be customised per your specific requirement, requires minimum documentation and provides flexible loan tenure. 

However, there are various types of business loans in India, and it is critical to select one appropriate for your needs.

Read this article to learn about the various types of business loans in India.

1. Working capital loan

As an entrepreneur, you can use working capital loans to meet your daily business requirements. 

You can avail of this easily accessible, simple financing loan to pay for extra expenses, employee salary, mortgage payments, rent, marketing expenses, utilities, inventory purchases, or other short-term financial requirements. 

Additionally, you can use the fund provided by the working capital loan to fund your channel partners, such as distributors and dealers. And also to acquire raw materials for your firm.

The best part about this business loan type is that you do not need to provide any collateral to receive your loan.

2. Term loan

Financial institutions offer term loans to help you cover all of your company’s financial needs seamlessly. Term loans are often known as instalment loans, as you are required to pay fixed EMI or instalments for the entire loan tenure. 

Be it funding your company’s expansion, modernising your workplace infrastructure by investing in cutting-edge technology, or boosting your Research and Development (R&D) department, a term loan is your answer.

Additionally, acquiring a term loan is easy as you only have to provide some essential documents like annual turnover, credit score, business experience, etc.

3. Equipment financing loans

Equipment financing loans are specific. They help your business grow by providing the funds for new equipment, technology and assets. For this reason, they are also known as machinery loans, that help you acquire machines needed for enhanced production. 

This loan can also be used to upgrade existing machinery and equipment. The loan amount, interest rate, and repayment period each financial institution offers usually vary.

4. Letter of Credit

A letter of credit is a credit limit commonly used in international trading businesses. With this, a financial institution or lender provides a financial guarantee to businesses that operate in international commerce. 

But why is it needed? It is due to the risks like distance, unknown suppliers/dealers, and different rules and regulations associated with foreign transactions. 

This letter guarantees that the seller will be paid if specific requirements are met. Furthermore, even if the buyer cannot pay, the financial institution will pay the seller. A letter of credit is very customisable, and both trading partners can include their terms and conditions.

5. Loan against property

Why let your property sit idle? You can use it to get a business loan. With a loan against property, you can get a loan of up to 70% of the value of your property. Not only that, but you also get easy repayment options, making it perfect for all your business expansion requirements.

All you have to do to avail of this type of financing for business is offer a property against it as security. With this, you can instantly get ample cash without losing possession of your asset.

6. Point-of-Sale (POS) Loans

Merchant Cash Advances, or POS Loans, are ways businesses pay a set amount in advance to suppliers via daily or future debit or credit card transactions. 

Despite the higher interest rate, businesses choose POS since it provides liquidity. It gives you quick cash, but you must repay it with a portion of your business’s daily credit and debit card sales.

The repayment option is linked to credit or debit transaction POS devices at grocery stores, shopping malls, retail shops, and supermarkets. This enables the borrowers to easily pay back the loan and interest.

7. Invoice financing loans

The invoice financing or invoice factoring loan is particularly targeted towards small businesses. The possibility of a small business having irregular cash flow is pretty high. And thus, a supply of money without any collateral can be a blessing. This is what invoice financing offers.

This type of loan provides money to small businesses between the time the businesses generate invoices and receive client payments. Loan funds are issued against invoices; therefore, the amount lent is determined by the amount raised in the invoice. 

This allows firms to restore cash flow without waiting for the client to pay the invoice amount. 

8. Business Hybrid Term Loan

A business hybrid term loan is a type of business loan that is dependent on collateral. Only when a company has fixed deposits (as collateral) with a financial institution can it obtain a business hybrid term loan?

Before lending money, the person’s full background is verified, and the amount is also finalised on that basis. Before issuing the loan, the financial institution investigates factors such as business cash flow, repayment history, fixed deposit terms, etc. 

This type of loan allows the borrower to withdraw the required amount and pay interest solely on the amount used.

9. Business loans under government schemes

The Indian government has launched several loan schemes to help people achieve their financial goals. These schemes help people specifically involved in the business, service, and manufacturing sectors. 

A few of these schemes include the following-

·         MSME Loan Scheme in 59 Minutes

·         National Small Industries Corporation

·         Pradhan Mantri MUDRA Yojana (PMMY)

·         SIDBI Loan

·         Credit-Linked Capital Subsidy Scheme