A business loan may be necessary for a variety of reasons. Timely finance is necessary for smooth business operation at every stage, including startup, maintenance, and growth. Because only some firms operate similarly, it’s crucial to have a wide range of financing solutions to accommodate various scenarios. So that you may better understand the various business loan choices accessible to you and choose the one most suitable for your company, we have compiled this comprehensive guide to point out the types of business loans you can get.
What are Business Loans?
A business loan is a form of debt financing used to finance company expansion, purchase necessary equipment, and meet other general operating expenses. Several types of business Loans are available from banks and non-banking financial companies (NBFCs) for small and medium-sized enterprises (SMEs).
Types of Business loans
You can’t take a “one size fits all” strategy when applying for business loans. Small and medium-sized enterprise (SME) loans are offered in various forms to suit the needs of various enterprises. Let’s get acquainted with the various business loans that businesses may obtain. This article provides an overview of the most frequent business loans offered to small and medium-sized enterprises (SMEs) in India.
Term Loan
Most significant lenders offer term loans as their primary form of business financing. The company’s credit score is a significant factor in determining the loan amount. Typically, the term of such a loan is between one and five years. Borrowers are typically expected to explain how they plan to put their loan money to work. Investing in capital outlays is the best use of money.
Business Credit Card
To meet immediate expenses, a business credit card is an excellent choice. This is a fast and straightforward way to get money when money is necessary for the company’s survival. Benefits such as cash back, credit points, insurance coverage, and more are offered to consumers who use their business credit cards. In contrast, a company credit card should be considered only as a last resort, given the substantially higher interest rate associated with this funding source.
Equipment Loans
Semi-truck financing is only one type of equipment that can be a loan with an equipment loan. Obtaining a car, van, or light truck loan for a business is possible. The length of an equipment loan, with the equipment itself serving as security, is often coordinated with the equipment’s useful lifespan. Your equipment’s value and your company’s health will determine your interest rate.
Also Read: Difference between cibil score and credit score
Business Lines of Credit
Business lines of credit are another popular form of commercial financing. A business line of credit enables the borrower to access a predetermined credit limit from a lending institution and spend the funds as needed. After paying off a balance in full, the credit limit on the latter type of card is returned to its original amount (similar to a credit card).
Merchant Cash Advance
Merchant cash advances are an option for businesses needing quick funding that require repayment from a portion of daily credit and debit card sales. A merchant cash advance may be helpful if you need money, but your credit could be better. There is a risk that this financing will be too pricey for you.
Gold Loan
You can use your unused gold and jewelry as collateral for a business loan. You can use 20 thousand dollars of gold to secure a loan in India.
Bank Overdraft
An overdraft, or credit line, at a bank, allows you to withdraw from your business account up to a predetermined amount, regardless of whether or not there are sufficient available funds in the account. In other words, this is a means to avoid waiting for a bank to approve a loan and instead inject cash directly into the company.
Documents Required for Applying for Business Loan
Some of the paperwork you’ll need to apply for a business loan is included below.
- Document your identities, such as a passport, driver’s license, PAN card, or voter’s ID.
- Bank’s Statement.
- The Most Recent Tax Receipt
- Past three years’ worth of audited financial statements.
- Address verification documents, such as a business license, utility bill, ration card, etc., are required.
Conclusion
At any time, a company may require additional capital. These days, you may pick from various options designed to accommodate different kinds of businesses. Before asking for a business loan, you should carefully consider your demands and your ability to repay the loan. Choose the types of business loans from the options listed above based on your company’s needs and the amount of money you have available.