A business loan is a debt taken by an entrepreneur to expand the business. The purpose of a business loan can be a business expansion or meeting the urgent needs of the business.
A business may require funds to increase the production, purchase new machinery, expand market penetration or meet day to day operational expenses. To meet all these necessities a business can avail collateral-free financing from a bank or a non-financial banking company.
Every business is different and they have different needs. Travel business is different from a hotel business. Travel agencies may need money to purchase tickets whereas a hotel or a restaurant requires money for renovation. So there are various types of business loans available to cater to various business requirements.
1. Business Term Loan – This type of debt is given for a fixed term. Loan repayment tenure can be short (1 to 5 years) or long up-to 20 years. The borrower will repay the loan in equal instalments. Business term loans can be used for any purpose and they are collateral free debt. These business loans given by the loan provider are based on business credit score, average yearly or monthly revenue, and overall creditworthiness of the business.
Advantages and disadvantages of Business Loan
2. Working Capital Loan – Every business requires money to finance its day to day operations. Any business which faces difficulty in managing its day to day operations due to inadequate cash inflow can seek and apply for a working capital loan which will provide adequate and constant cash inflow. If your business requires funds to purchase raw material or to pay staff salaries, the working capital loan is the best option.
Advantages and disadvantages of Working Capital Loan
3. Machinery Loan – It is also known as business equipment loan. Machinery loan is taken by a business due to the following reasons.
Machinery Loans are unsecured which means that there is no need for any kind of collateral. A business can avail equipment and machinery loan from a bank or NBFC.
Advantages and disadvantages of Machinery Loan
4. A Business Line of Credit – A business line of credit is a kind of debt financing which allows the business to use a portion of the borrowed amount as per need without any obligation of using the entire borrowed amount. The entire sectioned amount is there for the business, when they need it, they can use it. Flexibility is the main advantage of this type of debt financing.
Advantages and disadvantages of Business line of credit
5. Invoice Financing – It is also known as invoice discounting. It is a kind of debt financing where business takes the loan from the lender against the unpaid invoices. In simple words, business is selling the unpaid invoices to the lenders however it is the responsibility of the business to collect the payments from the customer who own money to them. Lenders will charge some fee which may vary from 1 to 4% of the total invoices value.
Advantages and disadvantages of invoice financing
Business loans are helpful for thriving entrepreneurs who hope to start a business or expand the existing business.
Every business is different, they have different needs. Travel business is different from a hotel business. Travel agencies may need money to purchase tickets whereas a hotel or a restaurant requires money for renovation. Thus there are various types of business loans available to cater to various business requirements.
To meet business necessities an entrepreneur can avail collateral-free or secured financing from a loan provider. Both types of financing are available which depends on the loan amount and type of loan an entrepreneur wishes to opt for.
One of the advantages of business loan is quick approval and disbursal process, many loan providers provide online loan approval in minutes and you will get the financing within 24 hours of the loan application.
As there are many loan providers, they compete among themselves that helps the entrepreneurs seeking a business loan to get it at the lowest interest rate.
Loan providers are getting innovative to acquire more customers; hence they are offering a lot of benefits including flexible payment terms.
Eligibility for business loan differs from provider to provider however below is the generic information.
|Age||The applicant should be at least 21 years at the time of applying for the loan and should be no older than 65 years at the time of loan maturity|
|Firm Type||Self-employed individuals, Proprietors, Private Ltd. Co. and Partnership Firms involved in the business of Manufacturing, Trading or Services.|
|Turn Over||The business should have a minimum turnover of Rs. 50 lakhs.|
|Business Vintage||Individuals who have been in the current business for a minimum of 3 years, with 5 years’ total business experience.|
|Income||The business should have a Minimal Annual Income (ITR) of Rs. 1.5 lakhs per annum|
|Those whose business has been profit-making for the previous 2 years|
Documentation for a business loan is simple however the proper understanding of what documents are needed will help you to get the loan with ease.