Businesses, big and small, often need extra money to cover their day-to-day needs. The amount of funding they need depends on the type of business and its stage of development – starting up, growing, or established. Often companies need the most funding at the start and for growth. This article will discuss the Most Popular Types of Business Loans Products Today.
Uncovering the Most Popular Types of Business Loans Products of 2023
- Term Loan
A term loan is a loan that you have to repay in regular payments over a set period of time. It can be divided into short-term, intermediate-term and long-term loans, with repayment tenures ranging from 12 months to 5 years or more. Short-term loans are for 12 months or less, while long-term loans are for up to 5 years or more. Collateral-free business loans up to Rs. 2 crores can be offered, which may be higher depending on your business needs. The repayment tenure for the term loan is determined by the lender when you apply for the loan.
- Start-up Loan
A start-up loan is for new business ventures. To be eligible, the lender will look at the borrower’s credit profile and the company’s credit history, even if the business is new. They’ll also consider the company’s current financials, such as turnover figures to decide the loan amount, repayment period and interest rate. The applicant must provide proof that their business is established and registered.
- Working Capital Loan
Working capital loans are short-term financing options used by individuals, entrepreneurs, startups, and MSMEs to cover their daily business costs. They can also be used to expand services, increase cash flow, buy raw materials, add inventory/stock, pay salaries, and hire staff. Loan amounts can be up to Rs. 40 lacks with repayment terms of up to 12 months or longer. Banks/NBFCs generally offer higher interest rates for working capital loans than for long-term loans or general business loans. The lender sets a limit for the amount of money that can be taken out, and it must be used only for specific business purposes.
- Loan Against Property
A loan against property is an excellent option for businesses looking for a loan of more than ₹ 50 Lakhs. This type of loan requires you to use a property as collateral. It can have a repayment period of 10 to 20 years, and you can get up to 70% of the property’s value. The property must be free from legal disputes to qualify for the loan. Both commercial and residential properties are accepted.
- Invoice Financing
Invoice financing, also known as invoice factoring or discounting, is a type of funding designed explicitly for small businesses that experience a delay between issuing invoices and receiving payment from their customers. Under this system, a financial institution will provide funds against the total amount of invoices issued, up to 80% of the invoice value. After the company receives payment from its customers, it can pay off its debt to the lender at an agreed-upon interest rate and the repayment period. This approach allows businesses to access capital quickly without waiting for customer payments, helping them remain financially stable when cash flow is tight.
- Equipment Financing
Equipment financing is an ideal solution for businesses that are involved in the manufacturing of goods. Many times, manufacturers require specialized and expensive equipment to operate efficiently. Moreover, with new inventions and technological advancements appearing on the market constantly, this type of loan can prove invaluable in helping cover the cost of these unique pieces of machinery. The lender will typically use the machinery as collateral to secure the loan. This offers an excellent way for businesses to gain access to funds quickly and easily without worrying about their assets being at risk.
- Business Loan for Women
To encourage more women to enter the field of entrepreneurship, many financial institutions have devised special loan schemes specifically targeting female business owners. Even the Indian government has implemented various initiatives aimed at helping women who are interested in setting up small-to-medium-sized enterprises. These specialized loans for female entrepreneurs offer several advantages, such as flexible loan amounts, start-up loans, discounted interest rates compared to the standard rate, and a streamlined loan process. Moreover, these loans can be used for various purposes, such as purchasing equipment or marketing materials. By taking advantage of these opportunities, women entrepreneurs can ensure they have the funds to turn their business dreams into reality.
- Overdraft Facility
An overdraft facility is a type of funding offered by a bank to its account holders, allowing them to withdraw cash from their account even when their balance is zero. The interest rate applied is only on the amount utilized from the sanctioned limit and is charged daily. The credit limit sanctioned to an account holder depends on multiple factors, such as their relationship with the bank, credit history, cash flows, and repayment history (if any). This overdraft limit is usually revised every year and can be used in any manner by the user, provided they pay the interest on time. Sometimes, an overdraft facility may be offered against collateral/securities such as fixed deposits made with the same bank.
- Business Credit Card
A business credit card is an excellent way to obtain short-term funding when the business requires immediate cash. It offers several attractive benefits, such as cashback, credit points, and insurance coverage. However, it should be used as a last resort due to its high-interest rate. Businesses should explore other options, such as obtaining a loan from a financial institution or tapping into their savings, before opting for this type of financing since it can be more expensive. By taking advantage of the various benefits associated with a business credit card and utilizing other options for funding, businesses can make sure that their short-term requirements are met without incurring large amounts of debt.
- Merchant Cash Advance
A merchant cash advance is the type of financing option in which businesses receive an upfront sum of money in exchange for a portion of their future debit and credit card sales. This makes it an appealing option for businesses that require quick capital, but it’s essential to ensure that the business has enough consistent cash flow to make the repayment installments. Generally speaking, when a business is doing well and bringing in more revenue, the repayments can be more sizable – making this an attractive option for many.
In conclusion, there are various types of business loan products available from financial institutions in India. Each type of loan is designed to meet the specific needs of a particular business. Depending on the size and stage of development, companies can choose from options such as term loans, business credit card loans, equipment financing loans, and merchant cash advances. With so many options for funding their operations or expanding their businesses, entrepreneurs should have no trouble finding a suitable loan product that meets their needs.
FAQs
1. What are the most common Types of Business Loans?
Answer- Term loans are a popular type of loan for small businesses. They give you a fixed amount of money to be paid back over an agreed-upon period of time.
2. What is a business loan in India?
Answer- Business Loans are available from banks, NBFCs, and other financial institutions to meet the needs of small and large businesses.
3. What are the 4 types of loans?
Answer- Types of secured loans in India: Home loans, Loans against property (LAP), Insurance policy loans, and Gold loans.
