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.
Explore Various Types of Business Loans 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.
3. Overdraft
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.
ALSO READ :- Check You CIBIL Score Today To Apply For Any Type of Business Loan
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.
11. Crowdfunding
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.
How to Get a Business Loan Online?
To apply for a Business Loan, follow the below-mentioned steps:
- Step 1: Click on the ‘Apply Now’ button.
- Step 2: Fill all the necessary details on the application form.
- Step 3: Upload the required documents and submit them.
To Conclude
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.
Frequently Asked Questions About Business Loan Types
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.