A growing business requires timely and adequate financial assistance to scale at speed. From hiring staff to marketing online, several areas call for investment in order to enable a business to grow sustainably. Fortunately, banks and NBFCs in India offer many types of business loans tailored to meet the various needs of businesses. In this article, we explore different types of business loans available in India to help you decide on the most suitable one.
- Term Loans
Term loans involve borrowing a fixed sum for a specified term, usually with a predefined interest rate. These loans can be used for various financial activities related to the business. Term loans can be secured or unsecured in nature. Typically, they are taken for a specific purpose, such as for operating expenditure requirements. The interest rates and repayment terms vary based on the borrower’s creditworthiness and the lender’s policies.
- Working Capital Loans
Working capital loans are the go-to option for businesses seeking short-term capital to cover day-to-day operational expenses. These loans are also used by businesses to meet a shortage of cash during the off-season. They are typically easier to obtain and have shorter repayment periods than term loans. Working capital loans can be secured or unsecured.
- Loans Against Securities
Loans against securities are a type of borrowing where businesses pledge their financial assets, such as stocks, bonds, or mutual funds, as collateral to secure a loan from a financial institution. The value of the securities determines the loan amount; if the borrower defaults, the lender can sell the assets to recover the loan amount.
- Unsecured Loans
Many lenders also offer unsecured loans to help businesses expand. These loans do not require any collateral and are ideal for small businesses that do not possess tangible assets to pledge. Unsecured loans can be used to meet a variety of business needs such as working capital requirements, finance for business expansion, new inventory purchases, salary payments, and bridge funding among others.
- Machinery & Equipment Loans
Machinery and equipment loans are used for investing in machinery, equipment, or technology upgrades. These loans help companies purchase or lease essential assets crucial to their operations. Interest rates are usually competitive, and the assets themselves often serve as collateral, reducing the risk for lenders.
- Overdraft Facility
An overdraft facility is provided by banks, allowing account holders access to cash over and above their account balance, up to a specific limit. Interest is charged on the amount used from the approved limit on a daily basis. The credit limit depends on the customer’s banking history, creditworthiness, cash flow, and repayment track record.
- Invoice Financing
Invoice financing provides a viable solution for businesses dealing with delayed customer payments. In this arrangement, lenders advance a percentage of the outstanding invoice amount, allowing enterprises to bridge cash flow gaps while awaiting payments. Once the customer settles the invoice, the lender receives the funds directly.
To help growing businesses meet their needs, financial institutions in India provide different types of business loans. To pick the right financing product, a company must take stock of its goals and compare different lenders. Applying for an online business loan is simple, easy, and fast. Banks today offer high loan amounts, flexible repayment terms, and easy application processes, making it easy for businesses to procure funds in times of need.