As a business owner, you might often wonder about the different possible ways to fund a particular business need. A Business Loan can help you fulfil various purposes, such as expanding a business, purchasing additional assets like land, leasing a factory, buying equipment or inventory, or covering operating expenses such as overheads and salaries. There are various types of Business Loan options available in India. Go through this blog to learn various Business Loan options available and how to get a loan for a business in India.
1. Term Loan
Term loans are a form of credit offered by banks and other lenders to businesses to purchase a new building for their production processes, equipment, or any other fixed assets to keep their businesses going. Term loans typically require collateral, ensuring repayment security. The loan amount offered usually ranges from Rs. 1 lakh to Rs.1 crore. Term loan comes with a specific repayment schedule and a fixed interest rate. There are three main types of term loans available - short, intermediate, and long.
Short-term loans have a tenure of up to 18 months and are usually used for meeting working capital needs. Intermediate-term loans have tenure from 12 to 36 months and are usually used for buying equipment and business expansion. Long-term loans have a tenure of 36 months and above, mostly used for capital expenditure and large-scale projects.
2. Working Capital Loan
Businesses can use working capital loan to cover their everyday business needs, such as purchasing equipment/machinery, enhancing inventory, managing cash flow for the off-season, purchasing raw materials, paying salaries, or covering unexpected expenses.
Working capital loans are mainly short-term, with amounts typically up to ?40 Lakh and repayment periods of up to 12 months, which can be extended based on business needs. NBFCs offer these loans at slightly higher interest rates compared to a long-term or general Business Loan. The lender sets a loan limit for the business, and the funds can be used for specific business purposes.
The overdraft facility allows individuals to withdraw money from their accounts even when the balance is zero. Interest is only charged on the amount used from the approved limit and is calculated daily. The credit limit is determined based on the account holder's relationship with the bank, credit history, cash flow, and repayment track record.
Furthermore, the overdraft limit is reviewed annually and can be used freely if the interest is paid on time. Collateral or securities, such as fixed deposits with financial institutions, are often required to secure the overdraft facility.
4. Loan Against Property
A Loan Against Property (LAP) is a type of secured Business Loan where you use commercial or residential property as security to borrow funds. Since collateral is involved, the Loan Against Property is available at lower interest rates and extended repayment periods. This loan is great for large business expansion, buying assets, or consolidating debt, especially when you need a large amount of money.
5. Letter of Credit
A letter of credit is a credit limit commonly used in trading businesses, particularly for international trade. Lenders provide a financial guarantee to companies involved in international trade. This type of credit can be used for both importing and exporting goods by entrepreneurs.
Businesses that operate globally often need to deal with unfamiliar suppliers and require payment assurance before proceeding with transactions. Thus, a letter of credit is crucial in ensuring payment security to suppliers.
6. Invoice Financing
Invoice financing is a process through which businesses can avail instant funds from a lender or financer. You can use invoices as collateral to get a quick loan from a financer or lender. It is mostly used by small businesses that encounter a time lag between raising invoices and receiving payment from clients. The lender provides funds against the amount raised in the invoice. Most institutions finance up to 80% of the invoice amount. Once the payment is received, the business clears the debt as per the decided tenure and interest rate.
7. Equipment Financing
Equipment financing is a type of business loan or lease for you to buy equipment. This equipment can be tangible assets other than real estate assets, such as company vehicles, furniture, manufacturing machines, medical equipment, computer equipment, etc. These loans are specific, wherein the equipment in question is taken as collateral along with some other security. Business owners availing of online equipment loans can avail of tax benefits. The loan amount, interest rates, and repayment tenure offered vary from lender to lender.
8. Point-of-sale (POS) Loans
POS loans help merchants offer their customers a financing solution during their purchasing stage of buying a product or service. You may have come across ‘buy now, pay later’ or monthly instalment plans while purchasing a product or service online. These options are examples of POS loans. This solution lets the lenders enhance their relationship with active or prospective customers with single record software to enable all transactions and help customers take quick loans during their checkout or online transactions.
POS loans facilitate payment of a lump sum amount in advance to merchants via their daily or future credit or debit card transactions to increase liquidity. These loans have higher interest rates compared to other types of Business Loan. The repayment facility is linked with credit or debit transaction Point of Sales (POS) machines installed at retail shops, grocery stores, shopping malls, and supermarkets.
9. Business Loan for Women
Business Loan for Women is a specialised financial product designed to support women entrepreneurs and promote gender equality in the business world. These loans offer additional capital for various needs, such as expanding operations, managing working capital, upgrading infrastructure, and more. By availing of these loans, women can seize growth opportunities, strengthen their businesses, and contribute to economic empowerment and inclusivity without any hassle.
10. Business Credit Card
A business credit card offers a viable solution to meet the financial requirements of a company effectively. With higher credit limits and other incentives, it provides numerous benefits. The clear separation between personal and business finances facilitated by these cards enables the user to make informed and prudent financial decisions for their business.
Crowdfunding is a form of financing that is raised by a large group of people or investors outside of the traditional funding setup for businesses. The funds are generated through donations, rewards, and equity from multiple entities. You can leverage social media for crowdfunding.
12. Small Business Loan
Small Business Loans are tailored to help small businesses expand, purchase equipment, or meet their financial needs. You can leverage Small Business Loan for operational costs, inventory restocking, purchasing equipment, employee wages, main cash flow, buy new machinery, etc
13. Other Loan Schemes
To encourage the growth of small businesses, the Government of India has initiated several loan schemes such as PMEGP, CGTMSE, Mudra Scheme under PMMY, Standup India, Startup India, PMRY, etc. These schemes are designed with certain benefits to promote individuals, MSMEs, women entrepreneurs, and other entities that operate specifically in the trading, services, and manufacturing sectors.
Various financial institutions provide loans under these Indian government business schemes, such as private and public sector banks, NBFCs, Regional Rural Banks, Micro Finance Institutions, and Small Finance Banks.
To apply for a Business Loan, follow the below-mentioned steps:
After understanding how to get a loan for a business in India, you should carefully consider the various types of loans available and how they match your business requirements. You must assess factors like interest rates, loan amounts, repayment terms, and any associated fees. Poonawalla Fincorp offers various Business Loan options to choose from with minimal documentation and quick disbursal.
1. What is the interest rate of a Working Capital Business Loan?
The interest rate of a Working Capital Business Loan starts from 15% p.a.
2. What is the eligibility for availing of a Business Loan for women from Poonawalla Fincorp?
To qualify for a Business Loan for women, applicants must be between 24 and 65 years old with a minimum business vintage of 2 years. They must have an annual turnover of at least ?6 Lakh.
3. What documents are required to avail of a Business Loan in India?
To avail of the Business Loan in India, you must submit KYC documents, business address proof, and financial status proof.
We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Business Loan disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply
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