Common Types Of Business Loans In India

Common Types Of Business Loans In India

What is a Business Loan?

A Business Loan is a type of loan in which there’s a creation of debt for business endeavours that the client will eventually repay with additional interest. It helps business professionals take the necessary strides in planning and developing their business. 

The different types of Business Loans fulfil different professional needs:

1. A working capital Loan: 

These majorly short-term loans help businesses during a financial crunch and take care of daily operational needs like managing cash flow, paying salaries, increasing inventory, investing in machinery and equipment, and more for traders, manufacturers, retailers, and other import and export organizations. Furthermore, the borrower is not required to commit any assets or collateral to the lender.

2. Term Loan:

A Term Loan is a prevalent Business Loan. A business’s credit history determines the loan amount and often has terms ranging from one to five years. It is beneficial for funding capital expenditure. When applying for such a loan, one must specify the intended usage. 

3. Start-up Loan:

A start-up loan is appropriate for entrepreneurs looking to establish a new company. Often, their firm lacks business vintage, and these candidates may not have an excellent or long credit history. As a result, lenders analyze the borrower’s personal credit history in addition to the company’s credit history when determining the individual’s eligibility for a Business Loan. The applicant must establish their firm before requesting a loan and present proof of business existence and registration at the time of application.

4. Loan against Property:

When a firm requires a loan above ₹50 Lakh, it can consider going for a Loan Against Property. Individuals can obtain this loan by pledging property as collateral, often in the form of a mortgage. It has a payback period of 10 to 20 years. Both residential and commercial property can be used as a security as long as it’s free of dispute. 

5. Invoice financing:

When there is a time gap between issuing invoices and receiving payments, a Company Loan might assist in fulfilling monthly financial obligations. The lender advances money in exchange for the amount raised in the invoice. The financial institution can grant a loan of up to 80% of the invoice amount. After receiving payment, the company repays the loan amount at the agreed-upon interest rate and term.

6. Equipment financing:

Equipment finance or Machinery Loan is suited for industrial enterprises. Most industrial units require expensive equipment to function, and Equipment Loans help purchase this expensive equipment. Lenders take the equipment and other security as collateral, and Machinery Loans often have cheaper interest rates than Term Loans.

7. Business overdraft:

Only when a company has established deposits with a financial institution can it obtain a business overdraft. To grant this loan, the lender examines the business’s repayment history, cash flow, set deposit terms, and other factors. The borrower can withdraw the appropriate amount and pay interest solely on the amount used.

8. Business Loan for women:

Certain banks provide a separate funding program for female entrepreneurs to inspire women who start small to medium-sized enterprises. Such unique perks include flexible loan quantities, interest rate reductions, and speedier loan processing.

9. Business credit card:

A company credit card enables enterprises to access funds in desperate need. Customers receive several benefits such as credit points, cash back, and insurance coverage. A company credit card should only be used as a last resort because it has a substantially higher interest rate. 

10. Cash advance for merchants:

A merchant cash advance allows one to acquire a capital advance on daily debit and credit card transactions, and the advance can be repaid using a portion of their credit sales. Organizations must have enough cash flow for repayments for this loan, and the advantage is that the borrower must pay based on daily sales.

Why Choose Poonawalla Fincorp?

Poonawalla Fincorp, your financial partner in business, guarantees many benefits and gains. We help companies to enable their dreams. The Business Loan application and disbursement procedure are streamlined and digitized to ensure a smooth and swift delivery. Every aspect can be completed online by submitting certain essential documents and fulfilling business loan criteria. There are instant approvals and quick disbursement of the sanctions to maintain a time-efficient functioning.