Types of Business Loan

A Business Loan is a financial instrument provided by a lender to a business entity, typically with predetermined terms and conditions regarding repayment, interest rates, and collateral. Entrepreneurs in India can choose from various types of Business Loans suitable for their business and add benefits they receive on their credit.

The different types of Business Loans and their distinctive characteristics are discussed in depth, aiding in a clear understanding of how they can help you achieve your financial objectives.

9 Types of Business Loans in India

There are various options for Business Loans in the market. Below is a compilation of the top 9 types of Business loans, along with their benefits and drawbacks.

1. Term Loan

Term loans are one of the most prevalent types of business loans offered by top lenders in India. The approved loan amount is based on the business's credit history. Typically, the term loan has a tenure ranging from 12 to 60 months.

Benefits:

• You can get a bigger loan amount with good interest rates.
• You can use the loan money for any business expense. Typically, for buying fixed assets for the company.
• Existing customers may sometimes get special offers with lower interest rates.

2. Working Capital Loan

Businesses utilize working capital loans to address financial difficulties and fulfill daily operational needs. This type of business loan can be used for managing cash flow, covering payroll expenses, expanding inventory, procuring raw materials, and investing in machinery/equipment, among other purposes.

Benefits:

• Quick loan processing for everyday business needs.
• No collateral is required.
• Easier to qualify for a working capital loan.

3. Loan Against Property

If your business needs a substantial amount, such as over Rs. 50 Lakh, you have the option to apply for a Loan Against Property. Borrowers of this Business Loan must provide a property as collateral. Additionally, the repayment period can span from 120 months to 240 months.

Benefits:

• Lower interest rates than other secured loans.
• Fast processing times (if you have all the documents).
• Get long repayment tenure for affordable EMIs.

4. Invoice Financing

Invoice financing is a good option for small businesses. When businesses experience a delay in receiving payments after raising invoices, a Business Loan can help meet their ongoing financial needs. In this arrangement, the lender offers funds based on the amount invoiced.

Benefits:

• Fast access to cash for your business.
• Easier loan approval process.
• Flexible repayment terms (up to a month or more).

5. Equipment Financing

Many manufacturing facilities need expensive machinery to operate. Therefore, equipment financing or machinery loans are among the most suitable types of business loans for manufacturing companies in India.

Benefits:

• Quick access to funding for equipment purchases.
• Flexible repayment options with various loan terms.
• Builds credit history with on-time payments.
• No collateral is required for the loan.

6. Business Overdraft

An excellent way to obtain fast financing for your business is through a business overdraft, especially if your business has fixed deposits with a specific lender. In order to approve this loan, the bank or NBFC will take into account your business's repayment track record, cash flow, terms of the fixed deposits, and other relevant factors.

Benefits:

• Flexible loan terms - borrow only what you need.
• Faster processing times.
• No foreclosure charges

7. Business Loan for Women

Several banks and lenders provide specialized financing programs, including business loans for women entrepreneurs, aiming to promote and support women starting small to medium-sized enterprises.

Benefits:

• Easier to qualify for with lower credit score requirements.
• Convenient online application process.
• Potentially lower interest rates compared to other options.

8. Business Credit Card

A business credit card is a great option for meeting immediate needs, as it allows businesses to access cash when they are in urgent situations.

Benefits:

• Offers rewards programs like cash back and points.
• Provides instant access to funds for emergencies.
• Simplifies payments for various purchases.

9. Cash Advance for Merchants

You can receive a merchant cash advance by getting an upfront sum of money based on your daily debit and credit card sales. The borrower is required to repay the advance using a portion of their daily credit card sales.

Benefits:

• No restrictions on the amount borrowed.
• No collateral is required.

10. Small Buisness loans

Here banks, online lenders and financial institutions lend financial support to entrepreneurs from small, medium and large enterprises owing to growth and development of their business. Small business loans are designed to be accessible for business owners by providing flexible repayment options at lower interest rates.

Few of the reasons why you want to a small business loan are:

• To meet your working capital requirements
• Purchasing equipments
• Scaling the business with more manpower & operations
• Managing the cash flow

11. StartUp Loans

Loans designed to help entrepreneurs launch their new business into the market are StartUp loans. They come with government backed schemes and lenders across online & offline platforms.

There are certain criterias to meet before availing a startup loan, such as:

• Having a solid business plan with a ROI(return on investment) viewpoint is essential. Showcase the idea of business and your good credit history for credibility
• Logistics fof business needs while availing the loan amount over a budget
• Knowing repayment terms to sync with your cash flow needs
• Multiple loan options in government schemes such as Startup India scheme to encourage new entrepreneurs.

12. Unsecured Business Loan

Loans given out by banks and other financial institutions purely on the basis of creditworthiness without the need for collateral is an unsecured business loan. Since the loans are unsecured they generally come with higher interest rates as a result of higher risk for lenders.

• Availability of unsecured business loan in one-time lump sum and line of credits (more personalised options)
• Best applicable for business with insufficient collaterals and or startups.

13. Business Line of Credit (LoC)

A flexible business loan similar to business credit card with a line of limit is a business line of credit. Here, a strong credit score helps you with fast loan approval as your creditworthiness opens options for flexibility and fund limit. Some of the featured benefits with LoC are:

• The biggest benefit of LoC is that interest is payed only on the borrowed amount such as improving cash flow management
• Cover immediate and short term financial needs and any seasonal fluctuations
• There are 3 different types of of LoC: Secured, Unsecured and other or specilized lines of credit.

Steps to Apply For a Business Loan with Buddy Loan

Step 1: Visit buddyloan.com or Download & install the Buddy Loan app (Android or iOS).

Step 2: Open the business loan application page. Enter your mobile number and OTP.

Step 3: Specify the desired loan amount and email. Next, choose the Business Loan option.

Step 4: Choose if you have a Business Proof (Yes/ No)

• If ‘Yes’ (If you have a business proof), enter your business and personal details.
  Or
• If ‘No’ (If you do not have a business proof), choose the profession type and enter your personal details.

Step 5: Provide income details and Click the ‘Submit’ button.