What types of business loans are available in India

To run a business capital is top most required. Many people such as entrepreneurs, retail shops, manufacturers and others raise money through different ways such as from their relatives, venture capitalists, selling shares and other ways. One of the common ways is a business loan where you apply for a loan with the lender with some conditions. So there are various types of business loans available such as if you want to finance your machinery or working capital for day to day operations that can also be done but what exactly are the types of loans available? Let’s understand here!

1.Term Loans (Short & Long-term Loan)

Term loans means that you borrow a loan for a specific period, usually with fixed monthly payments. For example, if you take out a 5-year term loan of ₹1,00,000 to buy a machine, you’ll repay it in equal monthly installments over those 5 years. Term loans are flexible and can be used for a variety of purposes, including purchasing equipment, expanding operations, or working capital needs.

There are two types of term loan:

• Short-Term Loans: These are loans with a repayment period of up to 1 year. For example, a business might take a short-term loan to cover immediate expenses or inventory needs.

• Long-Term Loans: These have a repayment period that extends beyond 1 year, often up to 5.

Few things you should know:

• Repayment tenure: 1 year for short term and 5 years for long term loan.

• Collateral required?: In most cases no

• Max loan amount: Up to 2 crore and above depends on the business.

2.Working Capital Loans

Working capital loans are short-term loans designed to finance the daily operations of a business, such as paying rent, salaries, or inventory, hiring staff and any other day to day expenses. These loans are typically used to cover short-term financial needs and ensure smooth business operations.

• Loan Amount: Up to 40 lakhs

• Tenure: 1 year (Depends on the business)

• Interest Rate: Higher usually than long term loans

3.Equipment Financing

Equipment financing is a loan specifically designed to purchase new or used equipment or update existing machinery for business use. The equipment itself serves as collateral for the loan. This type of loan is ideal for manufacturing businesses or a business that needs to invest in machinery, vehicles, or other equipment.

Interest Rates, Loan amount, Tenure can different from lender to lender

4.Invoice Financing

Invoice financing is a way for businesses to get cash quickly by using their unpaid invoices as collateral. Instead of waiting for customers to pay their invoices, businesses can get a loan or advance from a lender based on the value of those invoices.

Example: Suppose a company has issued invoices worth ₹5,00,000 to its customers, but is waiting for 30 days to get paid. To get cash sooner, the company can use invoice financing. They receive an advance of ₹4,00,000 from a lender right away. When the customers pay the invoices, the lender gets the repayment from those payments and returns any remaining amount to the company, minus a fee for the service.

5.Overdraft Facility

An overdraft facility is a bank service that allows you to withdraw more money than you have in your account, up to a certain limit. It helps cover short-term cash needs.

Example: If you have ₹10,000 in your bank account and your overdraft limit is ₹5,000, you can withdraw up to ₹15,000. If you withdraw ₹12,000, you will be using ₹2,000 of your overdraft limit, and you will need to repay this amount with interest.

6.Business Loan Against Property

4. What is invoice financing, and who can benefit from it?

• Invoice financing involves borrowing money against outstanding invoices. Businesses can get an advance on their invoices instead of waiting for customers to pay. This is beneficial for businesses that need immediate cash flow and have unpaid invoices pending.

5. How does a business loan against property work?

• A business loan against property involves using commercial or residential property as collateral to secure a loan. The property is valued, and the loan amount is based on that value. If the borrower fails to repay, the lender can take possession of the property to recover the loan amount. This type of loan generally offers larger amounts and lower interest rates compared to unsecured loans.