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4 <strong>Types</strong> <strong>Of</strong> <strong>Business</strong> <strong>Loans</strong><br />
For <strong>Every</strong> <strong>Small</strong> <strong>Business</strong><br />
<strong>Owner</strong>
5 <strong>Types</strong> <strong>Of</strong> <strong>Business</strong> <strong>Loans</strong><br />
Secured <strong>Business</strong> Loan<br />
Machinery Loan<br />
Loan<br />
Flexi <strong>Business</strong> Loan<br />
Unsecured <strong>Business</strong> Loan<br />
Working Capital Loan<br />
Term <strong>Business</strong> loan
A <strong>Business</strong> Loan<br />
A business loan is cited as one of the best options <strong>for</strong> small business owners to get<br />
additional funds <strong>for</strong> their business. It is a kind of financing that which is availed to<br />
meet the urgent needs of the growing small businesses and also during a cash<br />
crunch. The funds so availed can be used to buy machinery, boost production, or to<br />
increase working capital.<br />
The small business owners can avail a business loan online or offline. Although<br />
the business loan eligibility would differ from one lender to another, the usual<br />
criteria include:<br />
- Turnover of the business should be at least INR 10 lakhs in the last 12 months.<br />
- And the ITR of the last year should be more than 2.5 lakhs.<br />
- Broadly business loans are categorized under two— secured and unsecured<br />
business loan.<br />
P.T.O
Secured <strong>Business</strong> Loan<br />
The basic difference between a secured business loan and the unsecured<br />
business loan is the requirement. The major secured business loan requirement<br />
is a collateral, the borrower is required to hypothecate an asset as security.<br />
Secured business loans in India are usually offered by traditional lending<br />
institutions such as banks. The secured business loan interest rates depend from<br />
one lender to another.<br />
Since the borrower pledges a collateral in terms of an asset to secure a business<br />
loan, this type of business loan is ideal <strong>for</strong> big business units.<br />
However, secured business loans are not an ideal option <strong>for</strong> small business<br />
owners since they usually do not have an asset to hypothecate.
Unsecured <strong>Business</strong> Loan<br />
On the other hand, unsecured business loans are offered without collateral<br />
and are also called as collateral-free business loans.<br />
As opposed to a secured business loan, an unsecured business loan is<br />
offered without security. This loan <strong>for</strong> business without security is an ideal<br />
option <strong>for</strong> small business owners. Most unsecured business loan lenders in<br />
India are NBFCs.<br />
The unsecured business loan eligibility and requirement varies from one<br />
lender to another. An unsecured business loan in India can be used to<br />
increase working capital, buy new machinery, or start a new branch.<br />
A business loan also differs according to the needs of the borrower, i.e. there<br />
are business loans which are specially designed to suit the special needs of<br />
the small business owners. The 4 types of business loans are:
Flexi <strong>Business</strong> Loan<br />
A flexi business loan is a type of a new-age business loan. Here, the borrower<br />
gets a loan limit sanctioned up to which he can use the funds as and when<br />
required.<br />
A flexi loan in India can be used to fulfil different business requirements, such as<br />
during the capital crunch, expansion, and manpower training.<br />
A flexi business loan is ideal <strong>for</strong> small business who often face an unexpected<br />
cash crunch. The small business owner can avail funds at the time of need<br />
without having to wait <strong>for</strong> the business loan approval and disbursement time.<br />
The noteworthy point is that the borrower is required to apply <strong>for</strong> a business loan<br />
once and get his limit approved. Once he gets his limit, he can use the finances<br />
anytime without applying <strong>for</strong> the flexi business loan again. Also, the borrower is<br />
charged interest only on what he uses.
Machinery Loan<br />
Purchase of equipment and machinery often requires a hefty<br />
investment. And not all business’ financial conditions allow them to<br />
buy such expensive machinery or plant. A machinery loan is<br />
specially designed <strong>for</strong> this purpose. Many banks and Non-Banking<br />
Financial Companies (NBFCs) offer machinery or equipment loan to<br />
those seeking financial aid to invest in machinery. A borrower can<br />
choose to avail the business loan from the lending institution who:<br />
• Requires very minimal machinery loan documents.<br />
• A lender whose machinery loan rate of interest is the<br />
best in the market.
Working Capital Loan<br />
The type of business loan availed to finance the everyday operations of the<br />
business is called the working capital loan. This type of business loan is not used to<br />
buy loan term assets but to cover accounts payable, salaries and wages, etc.<br />
Working capital loans are an ideal option <strong>for</strong> a business that has seasonality or<br />
cyclical sales cycles. This business loan is usually unsecured and is availed <strong>for</strong><br />
short-term. A working capital loan can also be availed to increase working capital or<br />
purchase more inventory.<br />
The working capital loan in India is offered by both banks and NBFCs. The working<br />
capital loan interest rates usually low and is offered on comparatively easy terms<br />
and conditions. The repayment tenure <strong>for</strong> a working capital loan may range from<br />
12-24 months.
Term <strong>Business</strong> loan<br />
The term loan is usually availed <strong>for</strong> a pre-defined time. A term loan<br />
can be a short-term or long-term business loan. They can also be a<br />
secured or unsecured business loan. Term loans are usually<br />
availed <strong>for</strong> a variety of purposes, such as buying or upgrading<br />
equipment or machinery, increasing working capital or leasing office<br />
premises. The maturity of the term loan depends on the borrower’s<br />
ability to repay, i.e. he can decide the term of the loan—long or<br />
short.<br />
A business is indeed a great help <strong>for</strong> small business owners. And<br />
now that you know the types of business loans that you can avail,<br />
let us have a look at how you can avail a business loan:
Avail a business loan:<br />
Apply: You can apply <strong>for</strong> a business loan online or offline according to<br />
services offered by the lending institution. Most lending institutions in India<br />
offer online business loan application process, there is no need <strong>for</strong> the<br />
borrower to visit the lender’s office personally but can apply online.<br />
Documents: After applying <strong>for</strong> a business loan, the borrower must submit<br />
the business loan documents. Again, according to the lender’s services,<br />
the borrower can either submit the hard copies to the lender personally or<br />
upload soft copies on the lender’s website. It is important <strong>for</strong> the borrower<br />
to meet the business loan eligibility in order to get the business loan<br />
approved.<br />
Disbursement: If the lender approves the business loan, the borrower<br />
will get the sanctioned finances within a few working days. The business<br />
loan disbursement time will depend from one lender to another.
Thank You<br />
Source: https://www.doffitt.com/4-types-of-business-loans-<strong>for</strong>-every-small-businessowner/
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