Businesses, big or small, need additional funds to meet day-to-day business requirements. Required funding is dependent upon the nature of the business as well as the stage of development. Besides, businesses need funds in the initial stages.
In this article, we shall discuss business loan types in India.
1. Line-of-credit loans
A useful type of loan for small-business owners is probably the one permanent loan arrangement. The loan ensures protecting the business from emergencies and stalled cash flow. That said, most businesses consider line-of-credit loans for purchases of inventory and payment of operating costs. Besides, it takes care of working capital and business cycle needs.
However, these aren’t fit for purchases of equipment or real estate. A short-term loan is applicable as the cash in your business’s checking account. Every private lender has its method of funding. ZipLoan also provides it to cover checks. The business needs to pay interest on the actual amount advanced. Line-of-credit loans carry the lowest interest rate.
The businesses get to follow Interest payments made monthly, and the principal getting paid off at your convenience. Line-of-credit loans are for periods of one year and find renewal automatically for an annual fee. However, the lender needs to go through current financial statements, the latest tax returns, and a projected cash-flow statement.
2. Working Capital Loan
Enterprises use working capital loans to meet their daily business requirements. That said, it helps in buying machinery/equipment, purchasing raw materials, managing business cash flow, enhancing inventory, paying salaries, to name a few.
Majorly short-term loans, the repayment tenure in Working Capital Loan is up to 12 months. A collateral-free loan doesn’t demand the borrower to submit any collateral or security with the bank. The interest rate is a bit higher compared to long-term loans. The bank sets a limit for the business, and the amount is available for specific business purposes only.
3. Term Loan
The term loan is the one available for regular payments over a set period. Short-term and long-term loans come with the repayment tenure of these two types ranges between 12 months to 10 years. Shorter duration, as well as long-term loans, are applicable depending upon business requirements. The lender determines the terms at the time of loan application.
4. Equipment Loans
Depending on the nature of business, you can get access to the money to purchase, upgrade, or replace equipment. In this regard, get access to the Equipment loans to help you do so. An equipment loan is applicable for special computers, phone systems, medical machinery, industrial equipment, or similar entities. The MSME loan gives the funds you need to increase efficiency and productivity. You can readily get access to quality equipment.
5. Inventory Loans
Businesses get assistance with inventory costs. Inventory can help a business operate successfully, and so the inventory loan may be worth it. It is the best fit for covering the costs of apparel or accessories. Inventory loans give a lump sum of money upfront, while others also give a line of credit. Financing at least 50% of the inventory costs upon approval is possible.
6. Bridge Loans
Short-term financing options range from a few weeks to a few years. Bridging the gap between your shortage of funds and business expenses is possible with bridge loans. That said, businesses get the opportunity to receive the money they need to pay immediate expenses.
It sometimes also becomes useful for longer-term financing. When the tax bill is higher than expected, you can consider covering some costs during a low period. Besides, with it, you can also get access to the advantage of time-sensitive opportunities to grow your business.
7. Loans under Govt. Schemes
Over the government, India offers various loan schemes to promote MSMEs, women entrepreneurs, individuals, services, and manufacturing sectors. Various financial institutions can also get access to such loans. These are there for private and public sector banks, Micro Finance Institutions, NBFCS, Regional Rural Banks, Small Finance Banks, etc. Mudra Scheme under PMMY, Standup India, PMEGP, CGTMSE, Startup India, PMSvanidi, PSB Loans in 59 minutes, PMRY are some of the most common ones.
8. Point-of-Sale (POS) Loans
Merchant Cash Advance refers to the mechanism by which the business owner running an enterprise gets the scope for paying lump-sum amounts in advance to suppliers. They can do so with the help of the d or future credit or debit card transactions, besides the merchants of SMEs experience a short-term cash crunch.
For the guaranteed reduction of the liquidity crunch in the business, merchants can simply opt for POS loans. The interest rate under POS loans is comparatively higher compared to other business loan types. Besides, there is also a repayment facility linked with debit or credit transactions. They circle the Point of Sales (POS) machines at retail shops, grocery stores, supermarkets, and shopping malls.
Different kinds of the loans are trending in the market. You can get access to any of them depending on the needs of the business.