Business

Types of Business Loans in India

Be it a huge business or a start-up, working capital and additional funds are always direly needed for any business to function smoothly. Business loans are an ideal way of ensuring that the business always has cash flow and emergency funds. There are eight different types of business loans in India, and each has a different set of features and benefits. It is crucial to understand these loan types to be able to make the right choice. 

  • Working Capital loan

Businesses can meet their daily business needs, like purchasing raw materials or stocking up on inventory, by applying for a working capital loan. These types of business loans fall under the short-term loan type and are usually collateral-free. The repayment tenure for a working capital loan is up to 12 months from the date when the amount is sanctioned.

  • Bill Discounting 

This is a type of funding facility where the lender gives an advance amount to the seller, at a discounted rate. Such loans are also known as Invoice Discounting.

  • Letter of Credit

This type of a business loan is like a credit limit that is offered to the business owner by a bank or lender. It is a very common business loan for trading businesses, overseas exportation businesses etc. 

  • Term loan

Out of these different types of business loans, a term loan is the most common and accessible of all. This type of loan can be both short and long-term in nature, and businesses can avail of up to 1 crore collateral-free business loan. The loan term is usually between 1 to 5 years.

  • Equipment/Machinery loan

This funding option is often given to borrowers who need the loan amount to purchase machinery, new equipment or even to upgrade the existing equipment. Large companies, factories, MNCs and companies in the manufacturing sector often need such business loans. Another benefit of this loan type is that the business owners can enjoy tax benefits on a machinery loan as well.

  • Overdraft facility

Banks offer this type of funding to business owners who hold an account in their bank, irrespective of zero account balance. One of the advantages of this facility is that interest is charged by the bank only on the loan amount that has been utilised by the business. The account holder’s cash flow, credit history, past payment records and relationship with the bank are some of the deciding factors for sanctioning the credit limit.

  • Point of Sales (POS) loans

Often businesses face a short-term cash crunch in operations and need liquidity for their business to continue operating smoothly. POS loans, i.e., Merchant Cash Advance, helps business owners in such times by paying suppliers a lump sum in advance, based on their credit/debit card transactions of their business POS machines.

  • Loans under Government scheme

To promote budding entrepreneurs, women led businesses, MSMEs, etc., Indian government has initiated various loan schemes. Some of the well-known loan schemes are PMMY’s Mudra scheme, PMEGP, and the CGTMSE loan scheme. 

It is very easy to avail of a small business loan online as all you have to do now is visit the lender’s website to apply for a business loan. Besides private or public Indian banks, these government loan schemes are also offered by MFIs, NBFCs, SFBs, to name a few.

In conclusion:

Business loans can be availed at attractive interest rates and nominal charges. It is advisable to visit an aggregator site to compare different loan types, rate of interest offered by lending institutions and then make an informed decision.

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