Business finance looks tricky at times. In dynamic times like today, business owners often wonder how to fund a particular business need. There are various business needs that range from buying assets to funding the working capital requirements. It is important to note that there are various types of loan for business available in India and you must choose one that is best suited for your situation. Here are the different types of business loans you must consider.
- Term loan
A common type of business finance is a term loan. You can choose a secured or an unsecured business loan and the amount will be based on your credit history. A term loan has fixed tenure that can range anywhere from 1 year to five years and can go as high as 20 years in the case of secured loans. The loan serves a specific purpose and is usually taken for capital expenditure.
2. Working capital loan
As the name suggests, a working capital loan will be suitable for businesses when you need to fund the working capital needs. It helps with the day-to-day business activities and can be useful during the off-season or to meet the demands in peak season. The loan is available for a short tenure and only serves the purpose of working capital needs.
3. Loan against property
Another common form of borrowing, a business loan against property is a secured loan that has a high amount and long tenure. The applicant has to hypothecate the property with the lender for business purposes. You can use a residential or commercial property for the purpose and the lender will finance about 70% of the current market value. The title should be clean and the tenure of the loan can go as high as 15 to 20 years.
4. Invoice financing
Also known as invoice factoring, invoice financing allows businesses to fill the gap between the raising of invoices to receiving payment for the same. Lenders offer finds against the amount that is raised in the invoice and finance up to 80% of the invoice amount. The consumer pays on the due date and after the business receives the payment, it will close the transaction.
5. Equipment financing
If a manufacturing business requires new machinery or equipment, it is best to apply for a business loan for the same. New or refurbished equipment does not come cheap and with equipment financing, it can become possible to own any equipment you want. Since the cost of purchase is high, the business loan has a high amount and flexible repayment tenure. This business loan is specific in nature and the equipment in question can work as collateral.
A common form of borrowing for all types of businesses, an overdraft facility is offered against collateral. The lender will consider your credit history, business cash flow, and repayment history when extending an overdraft. You can withdraw the amount required and pay interest only on the amount you utilize.
It is best to consider your requirements and choose a business loan for business that fits your needs. Consider the terms of the business loan and then choose one that is aligned with your business requirement.