The start ups in India are expanding at a very fast pace and this has become possible due to the constant encouragement coming from the Government of India and through various funding and schemes that have been launched and introduced in the past years. The MSMEs and start-ups face a numerous challenges in India, especially when it comes to arraging the funds for to carry out day to day operations, managing working capital and other expenditures. This is where the government of India has started supporting and now Government through its various funding schemes and CGTMSE loan offers, has proved to be a boon for an MSME sector.
Here are the top 7 types of business loans available for entrepreneurs in India.
1. Term Loan
Term loan is one of the most famous and known type of business loan. A term loan can be a secured or unsecured type. The amount here depends on the business credit history. The period over here in term loan is fixed, ranging anywhere in between 1 and 5 years if it is an unsecured business loan, or even anywhere up to 15 – 20 years if it is a secured business loan. One can take the term loan for a specific purpose, but mostly it is taken to meet the requirement of capital expenditure. The lender disburses the approved business loan in a lump sum amount.
2. Start-up Loan
A start-up loan as the name itself suggest is for new business ventures. Borrowers of start-up loans may not always have a good credit history of their business due to the lack of their business vintage. Therefore, to judge the business loan eligibility, the lender will consider the borrower’s personal credit history profile along with that of the business. The current annual turnover figures and other things are also considered to decide the business loan amount, period, and business loan interest rate as applicable. The business should be an established one, and the borrower must submit all the required proofs of the business existence and its registration.
3. Working Capital Loan
Working capital loans are taken in order to overcome the shortfall of cash to operate day to day business operations. It is nothing but a small business loan and is very helpful to deal with a shortage of cash to meet demand during a peak season. Most eligible applicants of working capital loan are the service providers, manufacturers, wholesalers, retailers or traders who are engaged in imports and exports.
4. Loan against Property for MSME
MSME loan with collateral are generally offered to businesses whose loan requirement exceeds Rs. 50 lakhs. The applicant has to mortgage his/her property as a collateral in order to avail a business loan. The borrower can avail the funds against a residential or commercial property. Lenders like banks or NBFCs can provide up to 70% of the market value of the property. The mortgaged property provided should also be free of litigation. The tenure of such MSME loans is up to 15 – 20 years, depending on the terms set by the bank or the financial institution.
5. Invoice Financing
Invoice financing is also known as invoice discounting. This is a type of funding that is especially meant for small businesses that encounter a long time in raising the invoices and receiving the payment from their clients. The financial institution provides money against the amount raised as per the invoice. The lending institution can provide funds up to 80% of the total invoice amount. Once the business gets the payment, it can clear off the debt as per the decided time frame and the interest rate.
6. Equipment Financing
Mostly the manufacturing businesses opt for equipment financing or the machinery loan. As the manufacturing units usually requires expensive equipment for their business operations. While, to purchase these machinery, from all the types of business loans available, machinery loan is the most preferred one. This is because machinery loan is more particular, wherein machinery is considered as collateral along with other security. The interest rates are lower than those charged on the term deposits.
7. Business Loan for Women
Some of the leading NBFCs like Ziploan have these special schemes on business loan for women. The government of India had started initiatives for woman entrepreneurs to encourage women in establishing MSME businesses. The advantage of MSME loan for women includes a flexible loan amount and discount on the business loan interest rates and a comparatively quicker loan process.
To Conclude, It is advisable to avail of a business loan based on the business requirement. The above information on a business loan will guide you as a business owner to decide the type of business loan, and also which is best suited for your business venture.