7 Types of Business Loan in India

One of the commonly preferred practices for funding small and large-scale enterprises is taking an online business loan to pave the road ahead. While they are various sources of funding available in the market for emerging entrepreneurs such as investors, grants, private money-lenders, loans, etc., each one comes with its own set of terms and conditions. On the other hand, a business loan is comparatively easy to obtain and convenient to use. However, you should be pretty careful in choosing the right type of loan by carefully analyzing the associated factors such as the business requirements, total loan amount, repayment rules, etc. (Business Loan in India)

 

Scroll down to know about the seven types of business loans available in the market.

 

  • Friends & relatives loan

Even though borrowing money from family members or friends involves the risk of jeopardizing your relationship if things did not go according to plan, it is highly recommended. It comes with the most satisfactory business loan interest rate and repayment plan ever. While many of your known ones may carry surplus money and would love to help you financially, it would be best to approach them with a formal business plan, specifications, and revenue model. This would help gain their trust and assure them of complete repayment within a stipulated time. Additionally, they may also encourage you and suggest ways to expand your business even further.

 

  • A business line of credit loan

Another good option to acquire adequate funding for building your enterprise business line of credit is a flexible business loan. You only pay the interest amount accumulated on the portion of funds you borrowed from the lender. Quite similar to the workings of the credit card, where you draw and repay money upon your requirement while staying within the credit limit, this loan also allows you to operate the cash flow along with reusing and repaying the credit as per your business needs. While you can obtain a business line of credit loans from financial institutions or online lenders, pay attention to offered interest rates and credit limits to get the best deal.

 

  • Working capital loan

Short-term business loans are used to bring additional funds for growing your business; a working capital loan can help deal with everyday expenses such as advertising, payroll, or inventory purchases. Like personal loans, the candidate must possess a healthy credit history to get the loan approved, which might take a significant period due to a lot of documentation involved. Offered at a low interest rate between 3% and 7% to a person with a good credit score, a working capital loan can be obtained through a local credit union or third-party direct lender.

 

  • Business term loan

A business term loan involves borrowing a lump sum of money from financial institutions, which can be repaid at a fixed business loan interest rate over a term of 1 to 5 years. While only the enterprises having a good credit record that generates steady revenues qualify for it, a business term loan is offered at lower monthly payments and longer payment terms than short-term loans. Available for a variety of businesses and with fewer constraints, this loan can help you expand by procuring new equipment, facilities, or office space.

 

  • Small Business Administration (SBA) loan

Available for small businesses through private-sector lenders, an SBA loan is a government-backed secured loan that demands some asset as collateral from the borrower’s side. While there are three types of SBA loans, i.e. 7(a) loans, microloans, and 504 loans available, you must assess them carefully before filing the loan application as each of them comes with its own set of benefits and challenges.

   

  • Accounts receivable factoring

Generally used to buy your business extra time to find a more suitable loan prospect in terms of sustainability, receivable financing or accounts receivable factoring is designed to convert sales on credit terms to facilitate instant cash flow. Although quite costly and should be considered as a final option, it provides immediate funds enabling you to focus on business productivity.

 

  • Merchant cash advance

Technically a cash advance based on the funds collected through credit card sales, a merchant cash advance is an easy way to fast money but carries a high APR that could land you in a pile of financial debt if not handled carefully. An online business loan involves relatively less paperwork but calculates the fee amount beforehand, which depends upon your ability to repay the merchant cash advance.

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