Get Familiar with the different types of small business loans

Business finance can be perplexing at times. As a business owner, you may frequently find yourself wondering about the best possible way to fund a specific business need, especially in a dynamic environment like today. Purchasing assets such as land, leasing a factory or shop, or purchasing new machinery, or working capital requirements, or basic operating expenses such as overheads and salaries, are all examples of business needs. You can employ a business loan calculator to calculate the EMI depending on your loan specifics too. It is important to note, however, that there are various types of business loans in India that are best suited for a specific situation.

Here are the different types of business loans available in India for entrepreneurs:


Temporary Loan

A term loan is one of the most common types of business financing. The loan could be either secured or unsecured. The amount available is determined by the company's credit history. The term is fixed, ranging from 1 to 5 years for unsecured business loans and up to 15 - 20 years for secured business loans. A term loan is borrowed for a specific purpose, most commonly for capital expenditure. The approved fund is disbursed in a lump sum by the lender.


Start-up Funding

A start-up loan is used to fund new business ventures. Due to a lack of business vintage, applicants for such loans may not have a great credit history on their company. As a result, when determining the eligibility of a business loan, the lender will consider both the borrower's personal credit profile and the company's credit profile. The current turnover figures and other financials are also taken into account when determining the loan amount, tenure, and interest rate. The company must be established, and the applicant must provide proof of the company's existence and registration. Business loan for new businesses is a great help for start-ups.


Loan for Working Capital

Working capital loans are small business loans used to overcome a cash shortage in order to run a business on a day-to-day basis. It generates the cash flow balance required to run a business. This loan is also useful for dealing with a cash shortage during the off-season or meeting demand during a peak season. The majority of qualified applicants are service providers, manufacturers, wholesalers, retailers, or traders involved in exports and imports. Please keep in mind that you can use our website's business loan EMI calculator to figure out your monthly payments.


SME Loan Against Property

Financing companies provide SME loans secured against property to businesses with loan requirements greater than Rs. 50 lakhs. In this case, the applicant must mortgage his or her property in order to obtain funds for business purposes. Borrowers may apply for funds against either residential or commercial property. Lenders can finance up to 70% of the property's current market value. The property's title should be clear and free of encumbrances. In addition, the mortgaged property should be free of litigation. The term of such loans can range from 15 to 20 years, depending on the lending institution's terms and conditions.


Financing for Invoices

Invoice financing, also known as invoice discounting or invoice factoring, is ideal for small businesses that face a time lag between issuing invoices and receiving payment from clients. The financial institution advances funds in exchange for the amount raised in the invoice. The lender will finance up to 80% of the invoice amount. Once the payment is received, the debt is discharged in accordance with the agreed-upon tenure and interest rate.


Financing for Equipment

Manufacturing companies are the most likely to use equipment financing or a machinery loan. Manufacturing plants necessitate the purchase of expensive machinery in order to function. And, of all the types of business loans available, equipment financing is the most commonly used to purchase machines. This is due to the fact that machinery loans are unique; in that, the equipment in question is used as collateral alongside other security. Interest rates may be lower than those offered on term deposits.


Women's Business Loan

Some financial institutions have special business loan programs for women entrepreneurs. Even the Indian government has initiatives in place to encourage women to start small to medium-sized businesses. A flexible loan amount, a start-up loan, a discount on standard interest rates, and a faster loan process are all advantages of specialized loans for women entrepreneurs.


Overdraft protection

An overdraft facility is provided in exchange for securities or collateral, most notably fixed deposits with the financial institution. Before approving a specific fixed overdraft limit, the lender considers the borrower's credit history, relationship with the institution, business cash flow, and repayment history. The borrower may withdraw the required amount and pay interest only on the amount withdrawn. The funds can be used in this manner as long as the principal and interest are repaid within the specified time frame.


Merchant Cash Advance

In this case, the financial institution advances capital on a portion of daily debit card sales or credit. The borrower is then required to repay the advance using a portion of the daily credit sales. The borrower must ensure that he or she has sufficient cash flow to cover the payments. The benefit of a merchant cash advance is that the person only has to pay based on daily sales. So, if the business is slow, the amount to return is low, and if the business is good, one can repay more.


Commercial Credit Card

While a business credit card may not be the first option for financing a company's needs, it is an excellent option for short-term and immediate funding. If a business owner needs quick cash and also wants to earn rewards for debt payments, then a business credit card is a good option. Several financial institutions entice customers to use this type of financing by providing benefits such as introductory cashback on purchases, protection/insurance coverage, and so on. However, the interest rates may be higher than those of traditional business loans.

To sum up

It is best to choose a business loan based on your specific business profile and needs. The information provided above will assist you as a business owner in determining the type of financing that is best suited for your venture.

Simplified Marketplace has tied up with several legit banking companies and financial institutions and provides various types of business loans in India. To learn more, register now at or contact us by clicking here. Our representative will contact you with additional information.



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