Types of Business Loans Choose best option for you 

There are a number of different reasons you might need a business loan. Whether it is to start, run or expand your business, there is a need for timely funding so that you can operate smoothly. Not all businesses work the same way, and this is why it is important to have a variety of options for financing that address different business situations.The differences in business loans come about because of the loan duration, type of interest, borrowing amount and flexibility of the loan. 

Here’s a brief overview of the most common types of business loans 

Term Loan 

Term loans are long term loans with higher amounts and taken for a specific need, most often for the capital expenditure of the business. The tenure of the loan ranges from 5 to 20 years and is always supported by collateral. Term loans are extended for fixed tenure and have a fixed or floating interest rates 

Working Capital Loan 

Working capital loans are used by enterprises to meet their daily business requirements and for various business expansion services, enhancing business cash flow, purchasing raw materials, addition in inventory/stock, paying salaries, hiring staff, etc. Working capital loans are majorly short-term loans in which the repayment tenure is up to 12 months. This loan is also termed a collateral-free loan in which the borrower is not required to submit any collateral or security with the bank. The interest rate offered is a bit higher, as compared to long-term loans or general business loans. In this type of loan, the bank sets a limit for the business to take a loan and the amount can be utilized for specific business purposes, only. 

Loan Against Property 

A loan against property is a good fit for when businesses demand a loan amount of more than ₹ 50 Lakhs. As the name suggests, this loan is offered with the security of a property. The tenure offered with a loan against property ranges between 10 to 20 years. The applicant must mortgage the property in order to be eligible for funds through a loan against property. The loan can be acquired by providing any kind of property, whether commercial or residential. The lender offers up to 70% of the value of the property through the loan. To avail this type of business loan, lenders must especially ensure that the property in question is free from any kind of litigation. 

Invoice Financing 

Invoice financing is the quick way of infusing cash into the business using the outstanding invoices. A loan is secured against the unpaid bills and the tenure period equals the invoice due date. The debt amount given by the finance company is usually 80% of the invoice value. Invoice financing facilitates instant cash flow into the system instead of waiting for the client to pay the invoice amount 

Equipment Financing or machinery loan 

The equipment finance or machinery loan is a funding option offered to the borrowers for them to purchase new equipment/machinery or to upgrade the existing. Equipment finance is used mainly by large enterprises and enterprises engaged in the manufacturing sector. Enterprises or business owners availing equipment finance or machinery loan also enjoy tax benefits. The interest rate, loan amount, and repayment tenure offered shall vary from lender to lender. 

Business Loan for Women 

With the growing demand, financing institutions are now offering special business loans that are curated for women. To further encourage this initiative, the Government of India has curated several schemes to encourage women to undertake medium-sized and small businesses. Business loans for women are offered through the best deals like flexible repayment tenure, fast loan process, low-interest rates and much more. 

Business Overdraft 

Bank overdraft, also known as a Credit line, is a revolving credit facility wherein you can withdraw from your business account of the bank, up to a sanctioned limit, even without a required balance in the account. This is one way of by-passing the entire loan application process to get instant funds into the business. With Overdraft facility, you only pay the charges for the amount of money used for a specific period. The good news is after you repay the amount, the loan amount is restored back to the limit, to be drawn as and when the need arises 

  • Business Credit Card 

A business credit card makes for a great funding facility to serve short-term requirements. It is an immediate way of obtaining cash when the business is in dire need. With a business credit card, customers are offered great benefits in the form of cash backs, credit points, insurance covers and more. However, a business credit card must be the last resort as the interest rate on this kind of financing is much higher. 

Consider the purpose of borrowing and then decide on the type of loan you require. You will have to submit the requisite documents and ensure timely repayment of the loan in order to maintain a positive credit history. Business loans allow entrepreneurs like you to take their business towards progress without worrying about the lack of funds 

Reference https://www.lendingkart.com/business-loans/types-of-business-loans/ 

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