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  • Types of Business Loans

    Often as a business owner you might think that in case you do not get a loan from a bank, you will run out of options. However, that is not true. There are various types of business loans available in the market today and you must know amount them properly before you initiate the process of searching for the best business loan.

    Let us talk about the common business loans available in the market today.

    Types of Bank Loans for Business

    A term loan is a hefty amount that you borrow and repay it along with the interest amount over a specific tenure. You can easily avail long-term. Low-cost term loans from online lenders or banks.

    Short-Term Loans:

    Short-term loans are very similar to the regular term loans. However, the difference lies in the payment tenure. You will have to repay the debt over a shorter period of time when you go for a short-term loan. Some lenders offer smaller amounts with short-term loans that come with a tenure ranging between 3 months and 18 months.

    Business Line of Credit:

    Both online lenders and traditional banks can offer revolving lines of credit to you that can be utilised whenever you need financial assistance for your business.

    Equipment Financing:

    You may use an equipment loan for financing the cost of buying new equipment that will be required in your business. The equipment will be used as collateral for the loan.

    Invoice Financing:

    You can avail fast cash from the invoice financing companies based on the outstanding invoices associated with your business. You can enjoy up to 85% of the outstanding invoice. In case the invoice remains unpaid, you be charged a factor fee on a weekly basis.

    Merchant Cash Advances:

    If you wish to avail fast cash that you have repay with a part of the daily credit of your business and the debit card sales, you should go for merchant cash advances. In case you have a credit that does not look good, merchant cash advances can prove to be a good option. However, this particular financing option can turn out to be really expensive for you.

    Business Credit Cards:

    This s not a business loan technically. However, business credit cards can be used to finance your business. Your personal finances and business related finances will remain separate when you use a credit card specifically designed for your business needs. You can also build business credit by using this card and then earn great rewards and cashback on the purchases that you make.

    Best Business Loans for you:

    When you have spent a substantial amount of time running your business that it is only natural that you will be able to avail a business loan easily. This is because you have established the fact you can run your business properly and it can survive amidst all competition. The lenders will also be pretty confident about the fact that you have the capability to repay the loan.

    Since you have been in the business for quite some time, you must have built up the profits, revenue, credits, etc. These are the major factors that are considered while making an application for a business loan.

    If you have been in the game for a substantial amount of time, the business loans that are most suitable for you are mentioned below:

    • Term Loans – When you are planning to go for a small business loan, term loan is something that you might want to consider. A bank term loan lends you the money that you need upfront for your business needs. You will have to repay this amount to the lender along with the interest calculated on the principal amount. The term loans offered by the banks come with longer tenures and larger loan amounts. The interest rates associated with these loans are also low. It might be a little difficult to stand eligible for a bank term loan, but if you are eligible, it can prove to really helpful when you need a lump sum for a buying a property or inventory for your business.
    • Lines of Credit – The bank line of credit is one of the most popular type of business loans. The bank offers a line of credit to you and you can withdraw this amount whenever you want, as per your needs and convenience. A credit line business loan works like a business card. The difference is, you can avail cash with the line of credit business loan and the rates of interest are also low. If you have a small business, it is advisable to go for a line of credit as you will have cushion in case you are in need for cash immediately. Also, you will not have to apply for a business loan and wait for it to get disbursed in case of an emergency. It’s not very easy to qualify for this type of a business loan. However, you stand qualified for a line of credit business loan, go for it.

    What is Gold Loan?

    This type of loan can be availed against things like gold ornaments, gold coins, and gold jewellery. In case of a Gold Loan, you get the amount immediately in exchange for your gold deposits. You can borrow a maximum amount of up to Rs.20 lakh with Gold Loans in India.

    The tenure of the loan is decided by your lender on the basis of your profile. It can range between 12 months and 30 months.

    Loan Against Financial Securities or Shares:

    You can avail loans for your business against your financial securities like mutual fund units, demat shares, FMP (Fixed Maturity Plans), ETF (Exchange Traded Funds), savings bonds, and insurance policies. The funds that you raise by pledging the financial securities or shares can be utilised to fund your business requirements. However, all mutual funds and shares cannot be pledged. Insurance policies, mutual fund units, and shares that are approved under the policy of the bank can be used to raise funds.

    The tenure of the sanctioned loan expires every year. Therefore, it has to be renewed after the 12-month period. This duration is calculated from the date on which the loan is approved/sanctioned to the date on which the 12th month falls.

    What is Cash Credit Facility?

    These are loans that are granted as overdrafts on stock security in trade, rawmaterials, and process. The Cash Credit Facility is secured by the pledging of the organisation’s present assets (inventory and receivables). The limits of cash credit are based on the drawing power, which is established after the deduction of margin that is fixed by the lender/bank over stocks. The outstanding balance is never more than the drawing power.

    The tenure of the sanctioned loan expires every year. Therefore, it has to be renewed after the 12-month period. This duration is calculated from the date on which the loan is approved/sanctioned to the date on which the 12th month falls.

    What is Bank Guarantee?

    Bank Guarantee is the word given to you (debtor) by your bank that that all your liabilities will be taken care of if you fail to fulfil all the contractual obligations. The types of Bank Guarantee are mentioned below:

    • Bid Bond Guarantee.
    • Performance Guarantee.
    • Advance Payment Guarantee.
    • Foreign Bank Guarantee.
    • Financial Guarantee.
    • Deferred Payment Guarantee.

    The tenure depends on the guarantee requirement.

    How to Apply for Business Loan?

    Business Loans are offered by almost all banks and other financial institutions. You can easily apply for a business loan online. Find the one that suits your business needs and requirements and then apply for the business loan. All you have to do is go to the official website of the bank or lender and fill out an online application form for business loan. If the lender considers you to be eligible for the loan, you will get it soon.

    Documents Required for Appying Business Loan:

    Some of the documents needed to apply for a Business Loan are mentioned here:

    • Identity Proof like Passport, Driving License, PAN card, Voter’s ID, etc.
    • Statement from the bank.
    • Latest Income Tax Certificate.
    • Audited financials for the past three years.
    • Address proof like trade license, electricity bill, ration card, etc.

    Top of Business Loan Providers in India:

    The names of the top 10 business loan providers in India are mentioned below:

    • ICICI Bank
    • Fullerton India
    • HDFC Bank
    • Bank of Baroda
    • Kotak
    • Au Financiers
    • Magma Fincorp
    • Federal Bank
    • State Bank of India
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