Types of Business loans

7 Different Types of Business loans available for entrepreneurs in India.

Business funds may seem tricky at times. Especially in a pandemic 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.

Here are 7 different types of business loans available for entrepreneurs in India.

1. Term Loan:

One of the most common types of business loan is a term loan. The term loans are given usually in the form of Loan Syndication & given for a period of 3 years. This is again based on the Business Credentials. You may check the eligibility norms for this. The tenure can be of higher period if the funds are backed by security. A term loan is taken for a specific purpose, generally for capital expenditure.

2. Working Capital Loan:

Working Capital Loans are meant for Business Operations. Usually these are demand loans and given for a period of 12 months & re-offered. For next tenure of 12 months after assessment of past performance of Business. However working capital term loans (WCTL) are offered for more than one year & payable in monthly EMIs

3. Loan against Property for SME:

Secured SME loans or loans against property for businesses should be raised when the requirement of funds is higher than the current credentials of the business. Current credential may permit to raise only partial amount of need & by offering collateral the lenders become ready to fund higher amount. Here, the applicant has to mortgage his/her property to avail of funds for business & can be raised up to 200% of asset value considering the business credentials. Banks generally take asset as additional security to safeguard the future exigency but if business credentials are sound & visible then they can lend even beyond 200% value of asset.

4. Venture Capital:

Venture capitals are professionally controlled funds who put money into organizations which have big capability. They generally put money into a business towards equity and go out while there may be an IPO or an acquisition. VCs provide expertise, mentorship and acts as a litmus test of where the organization is going, evaluating the business from the sustainability and scalability factor of view.

5. Invoice Financing:

Invoice financing is also known as invoice discounting or invoice factoring. This type of funding is especially for small businesses that encounter a time lag between raising invoices and receiving payment from the clients. The financial institution provides funds against the amount raised in the invoice. The lender can finance up to 80% of the invoice amount. Once the business receives the payment, it clears off the debt as per the decided tenure and interest rate.

6. Equipment Financing:

It is the manufacturing industry that usually opts for equipment financing or machinery loan. In India, Lots of financial institutions (including SIDBI) extend funding assistance for acquiring machines or equipment for a business. Such loans are secured by hypothecation of the machinery being financed. For the running of their business, manufacturing units require expensive equipment. Out, of all the types of business loans , machinery loan is the most popular for purchasing machines.

7. Overdraft:

An overdraft facility is provided against securities or collateral, especially in terms of fixed deposits with the financial institution. The funds can be utilised as & when required in business up to 90% of the FD value. Generally this type of funding is availed when irregular cash flow is observed in a business & surplus cash remain unutilized for considerable period. This way the surplus cash continue to earn for business without losing the business liquidity.

Unsecured overdraft limit is also offered by some lenders based on the credentials of a business & sometime it can be availed against collateral.   

To Conclude:

A business can avail maximum possible opportunities with adequate capital. All above ways of business funding should be selected carefully. So that revenue can be maximized by efficient utilization of resources. One should always remember that by appropriate funding option, a business can generate enormous profits for its stakeholders & vice-versa is true if wrong option of funding is opted. There are several examples in the business fraternity where appropriate selection of funding source results into big fortune for the business.

I am sure you will find above post interesting & write me back for customized solution for your business funding needs at ceo@nkbkredit.com

Yours: CA Naresh Bansal

To Apply For funds : Click Here

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