Business finance may seem tricky at times. Especially in a dynamic environment like today, as a business owner, you may often find yourself wondering about the best possible way to fund a particular business need. Business needs can vary between purchasing assets such as land or leasing a factory or shop or purchasing new machinery, or working capital requirements, or basic operating expenses such as overheads and salaries. However, it is important to note that there are different types of business loans in India that are best suited for a particular situation.
Below are different types of business loans available for entrepreneurs in India:
1. Term Loan - One of the most common types of business finance is a term loan. The loan could be secured or unsecured in nature. The amount available depends on the business’s credit history. The tenure is fixed, ranging between 1 and 5 years if unsecured, or up to 15–20 years for secured business loans. A term loan is taken for a specific purpose, generally for capital expenditure.
2. Start-up Loan - A start-up loan is for new business ventures. Applicants for such loans may not have a great credit history on their company due to a lack of business vintage. Thus, to judge the business loan eligibility, the lender will take into account the borrower’s personal credit profile along with that of the company. The current turnover figures and other financials are also considered to decide the loan amount, tenure, and interest rate applicable. The business should be established, and the applicant must submit proof of the business existence and registration.
3. Working Capital Loan - Working capital loans are types of small business loans taken to overcome the shortage of cash to operate a business on a day-to-day basis. It generates a balance in cash flow necessary to run a business. This loan is also helpful to deal with a shortfall of cash during the off-season or meet demand during a peak season. Most eligible applicants are service providers,
manufacturers, wholesalers, retailers or traders engaged in exports and imports.
4. Equipment Financing - It is the manufacturing businesses that usually opt for equipment financing or machinery loan. Manufacturing units require costly equipment for the operation of their business. And to purchase the machines, out of all the types of business loans, equipment financing is the most preferred one. This is because machinery loans are specific in nature, wherein the equipment in question is taken as collateral along with some other security. The interest rates could be lower than those charged on term deposits.
5. Loan against Property for SME - At Rulaons, we offer SME loans secured against property for businesses whose loan requirement exceeds Rs. 50 lakhs. Here, the applicant has to mortgage his/her property to avail of funds for business purposes. The borrower can apply for funds against either a residential or commercial property. Lenders can finance up to 70% of the current market value of the property. The title to the property should be clean and free from encumbrance. The mortgaged property should also be free of litigation. Tenure of such loans is up to 15–20 years, depending on the terms and conditions set by the lending institution.
6. Overdraft - An overdraft facility is provided against securities or collateral, especially in terms of fixed deposits with the financial institution. The lender analyzes the borrower’s credit history, relationship with the institution, business cash flow and the repayment history before approving a certain fixed overdraft limit. The borrower can withdraw an amount required and pay interest only the utilized amount. The funds can be used in this manner as long as the principal and the interest amount are repaid as per the decided term.
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