What is a business loan?
A business loan, in simple terms, is the capital provided by a lender to a business owner. A lender can be a bank or any NBFCs in India and a business owner could be anyone looking to start a new venture or planning to expand their existing business. These loans are available for all kinds of businesses ranging from a self-employed person to a private company. A business loan is also known as a commercial loan and can aid in taking care of the cash flow requirements of your business, growing your existing business, upgrading your machinery, or renovating your place of business.
Types of Business Loans
There are several business loans available in the market which you can avail of based on your business needs. Some of them are listed below.
- Working Capital LoanAs the name suggests, this type of business loan is required to meet the day-to-day capital requirements of a business. A working capital loan can help with several business-related needs such as maintaining adequate cash flow, purchase of additional inventory, payroll costs, etc. It is a short-term business loan and comes in handy when you need to meet the cash flow requirement which may arise due to the delay between the payables and receivables.
- Term LoanA term loan can be short-term or long-term. These business loans need to be repaid in a set period of time. The loan amount sanctioned by a lender is usually dependent on the creditworthiness of the borrower’s business. The loan could be secured or unsecured in nature. A term loan repayment duration can range from 12 months to over 10 years depending upon the borrower’s requirement and repayment capability.
- Letter of CreditA letter of credit is a payment instrument in which a lender provides a guarantee of funds to businesses that deal in international trading. It is primarily used by enterprises that are involved in the import and export of goods overseas. One of the major concerns of doing business overseas is the payment assurance from unknown suppliers. A letter of credit from the lender comes in handy in such situations and provides assurance of payment to the suppliers or exporters before they perform any transactions.
- Equipment FinancingBuying new machinery or upgrading existing ones can be an expensive affair for businesses involved in manufacturing. Equipment financing is a funding option provided by a lender to upgrade or buy a piece of machinery. Also known as a machinery loan, an equipment financing option helps the borrowers to meet the fund’s requirement of a business arising from the need for new machinery.
- Merchant Cash AdvanceA merchant cash advance or a point-of-sale loan is a financial solution for SMEs to deal with a liquidity crunch. A cash advance is provided by the lender for which the repayment is done based on daily sales through the card terminal. This type of business loan is usually provided to the borrowers who use the POS terminals for customer payments.
How to Get a Business Loan
A business loan can be easily availed online through various financial institutions. But before applying for a loan you need to understand the requirements and accordingly figure out the appropriate loan for your business. Whether you’re just starting a business or looking to meet your day-to-day capital requirements or wish to grow your existing business, refer to the types of loans listed above while finalising the business loan you need as per your fund requirements.
All you have to do is check with your lender or visit their website and fill out a business loan application form online. If you are eligible for the loan, most financial institutions these days sanction loans within few days and require minimal paperwork.
Capital is the lifeline of every business and a business loan provides entrepreneurs with easy access to capital. It is crucial to identify the business needs and the nature of credit when deciding the type of business loan you wish to apply for. Business loans are available at flexible EMIs and nominal interest rates. Be it a big or small business, there is a business loan out there that is designed to fulfil your financial needs.
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