Last updated on February 12th, 2020 at 11:27 pm
Small businesses need funds for business growth which are provided to them by business loans. Different types of business loans are offered by lenders. Here is everything which one needs to know about the business loans in India.
If you are into business, then you will certainly relate with the need for constant funds to run different operations of the business. In case you have plenty of funds, then there is certainly no need of taking a business loan.
However, if lack of funds is causing a hindrance in the growth of your business, then business loans are what you need. Each and every business-from start-up to established ones goes through cash crunch at some point in time. But to sustain, one must work hard enough and find ways out so that business grows exponentially.
Businesses will have working capital gaps and the need for periodic capital infusion always. To manage these demands, business loans come handy. They are one of the best alternatives to finance the growing financial needs of the business.
How to Apply for a Business Loan?
A business loan can be applied either by visiting a bank or other financial institution in person or applying online for instant approval and funding.
Who Can Apply for a Business Loan?
- Any self-employed individual or professional, sole proprietorship, limited or private limited company, and partnership firm.
- The borrowing business should be working in a profitable state since at least the last 6 months or 1 year at the time of applying for a Business Loan.
- The age of the borrower should be between 25-65 years.
Types of Business Loans in India
Here are the top 5 types of business loans which can help you expand a business.
Demand loans are loans which can be recalled by the financial institution or bank any time. In these, the borrower will have to repay the amount on the demand of the bank even if it is within a short time period of 1-7 days. It is dependent upon the bank’s policy on what the loan was given.
These loans can be secured or unsecured in nature and come at decent pricing. They are usually borrowed to overcome the short term working capital gaps. The maximum term of demand loans is 12 months after which they can be renewed.
Term loans are given for a defined term period with the rate of interest being fixed or floating. The maximum tenure for unsecured term loan is 3 years and for a secured loan with collateral is 15 years. The term loans come with a fixed repayment schedule which can be either monthly or quarterly. The quantum of loan varies according to the needs and eligibility of borrower.
Term loans are beneficial if the business owner wants to acquire long-term assets like building, land and machinery. Using these term loans, one can finance building, land, infrastructure creation, purchase of a building, renovation, purchase of machinery, equipment, capital infusion, and vehicles etc.
The Line of Credit and Overdraft Facility
The line of Credit or overdraft facility is best suited for frequent cash inflow. Businesses typically need money to avail cash discounts by paying upfront or on time, extend credit to customers, pay off vendors or meet seasonal demands. Unsecured Line of Credit Loans are the best solutions for these needs. Digital lenders like Indifi are granting Line of credit which can be availed multiple times even if once used. These are like a credit card for business use.
Cash credit loans are granted as overdrafts on the security of borrower’s stock in trade/raw materials/process. Cash credit facility can be secured by pledging the assets of a business. Lenders ensure that outstanding balance is less than drawing power of borrower. Bank overdraft facility allows borrowers to debit their current account below zero up to a specified limit. It is predetermined by the bank on the basis of collateral’s. The interest is charged on the amount which is utilized. In this, the bank has full right to ask for repayment of money at short notice.
Also Read: Guide to Get Short Term Business Loan
Invoice discounting is an excellent alternative to traditional business loans which gives you instant access to cash locked up in your outstanding invoices. You don’t have to wait to get paid by your clients – you can instead get money immediately against your invoices. Digital lenders like Indifi’s invoice discounting facility offers up to 90 per cent of invoice value paid upfront. The repayment is very flexible wherein you can pay when the buyer pays you. This is much more flexible than term loans or overdrafts and is a great way to improve cash flows, manage late payments, or keep up with seasonal demand.
Merchant Cash Advance
Merchant Cash Advance is a leading type of unsecured business loan offered by the top digital lenders like Indifi. Under Merchant Cash Advance, a business can get access to business loans on the basis of their transactions against the card swipe machine and payment wallets. Even the repayments are connected to transactions, which effectively means the business need not worry about the regular installments, as the repayment is completely aligned with the business.
Documents Required to Apply for a Business Loan:
- Identity Proof: Passport, Driving License, PAN card and Voter ID
- Bank Statement
- Latest Income Tax Certificate
- Audited Financials for the past three years
- Address Proof: Trade License, Electricity Bill, Ration Card and so on