Starting and operating a business requires multiple steps, from creating a business plan to hiring employees, ensuring smooth operations, and many more. Financial support can be a great way to support your business in these steps. Business loans are a great way to get financial capital. Various types of business loans in India based on your needs to support your business for example working capital loans, government loans, equipment financing, and many others.
Here Are the Top 8 Popular Business Loans in India:
1. Term Loan:
A term loan is one of the most popular business loan in India, which is provided by banks or financial institutes. Term loan is divided into 3 types based on tenure, which varies from 12 months to 5 years or more. These are short-term loans, intermediate-term loans, and long-term loans. This type of loan can be secured or unsecured based on the business history of the borrower institution. The term differs for secured and unsecured loans. Usually, unsecured loans range from 1 to 5 years, and secured loans range from fifteen to twenty years. Term loans are a very lucrative choice for businesses because of their predictable repayment process.
2. Government Loan:
The Government of India has also launched various schemes to help MSMEs. Through these schemes, they provide very good opportunities for individuals, women entrepreneurs, and many other sectors. Mudra Scheme under PMMY, Standup India, CGTMSE, Startup India, are a few schemes through which the government of India helps businesses by providing loans at a very low rate. These schemes are enabled by public and private sector banks, Regional Rural Banks, Finance Institutions, Small Finance Banks and many more.
Advantages and disadvantages of Government loans:
Government loans come with a low interest rate and government backing. But these loans also have a very competitive application process and strict guidelines in some programs. In some cases, they also require your guarantee or property as collateral.
3. Working Capital Loan:
A working capital loan is used by enterprises to overcome cash crunch in day-to-day operations. Instead of capital asset purchases or expansive business ventures, these loans are used or sustain day-to-day operations. Depending on the borrower’s profile these business loans can be insecure or secured.
Pros and Cons of Working Capital Loan-
These loans attract borrowers because of their flexibility, fast cash and can help businesses in cash flow gaps. But Working capital Loans also attract a higher interest rate along with Short Repayment terms. Missing payment can cause a dent in the credit score of the borrowers and push them into the debt cycle.
4. Letter of Credit:
Letter of Credit is a financial instrument that can be issued by the bank or financial institution that guarantees that the seller will receive payment. Usually, it is used in international trade to enforce the terms. Letter of Credit can be costly because of the additional costs attached to it by the bank for processing. It reduces the financial risks for both parties.
5. Machinery Loan
The machinery loan fulfills the same purpose as the name suggests. It is used by businesses to acquire machinery and equipment. It fulfills the high demands of high manufacturing equipment.
Pros and cons of Machinery Loan-
No additional collateral is required for these loans. But these loans are only limited to equipment/machinery-related expenses and they also have higher interest rates in comparison to the traditional bank loans. machinery loans also require a solid business plan and a good credit history. In some cases, Machinery Loans also come with deductible tax benefits.
6. Overdraft Facility
Overdraft Facility is a very important service that is provided by banks to some individuals and businesses which allows them to withdraw money even if their account hits to zero. These overdrafts are often secured by Fixed Deposits (FDs). It is a very popular way to fulfill short-term cash flow gaps.
Pros and cons of Overdraft Facility
It gives you access to additional funds without even applying for them. But overdrafts are short-term loans Default in overdraft payments can lead to asset seizure. As the name suggests, this type of loan
7. Business Loans Against Property
As the name suggests, this type of loan you can get by putting your property as collateral. You can either use your personal and commercial property to secure the business loan. In the business loan against property the lender offers up to 70% of the value of the property. You can get this loan for a tenure of up to 20 years.
Pros of Business Loan Against Property:
This loan allows you to borrow larger amounts of loans which won’t be possible without the collateral.
These types of loans have a lower interest rate with a flexible repaying schedule in comparison to unsecured loans.
Cons of Business Loan Against Property-
They have a long processing time from evaluating the property to finalizing the loan terms.
There will always be a big risk of losing your property if you default on these loans.
Start-up Loan-
Launching a new business? A startup loan can give you initial capital to begin your entrepreneurial journey. They cover the expenditure incurred on starting a business like equipment purchase marketing and others. These loans are tailored to the needs of entrepreneurs to fulfill their needs.
Pros and Cons of Start-up Loans:
These loans have very flexible terms and they don’t need any collateral like other loans for example personal loans, term loans, working capital loans, etc.
Conclusion
Choosing the right business loan is crucial for your success. With so many options available in the market you need to access the needs and goals of your business. This will help you in choosing the right loan which aligns with your business objective and growth.
