Every small business owner aspires to take the business to new heights. If you are an existing entrepreneur looking for small business finance in India, you will have to understand the types of business loans in the market.
Types of Loans
1. Term loan: A term loan is a business loan that can help your business grow in every manner. The loan is available for short term, medium term and long term. It can be divided into two types- one is secured and the other is unsecured. In case of a secured loan, you need to provide a collateral for the loan to be approved. The interest rate in a secured loan is low since the risk is less. There is no such requirement of a collateral in an unsecured loan and the interest rate will be slightly high because of the risk associated with the loan.
2. Overdraft: An overdraft means overdrawing from a current account. It is a very common type of small business finance in India. With an overdraft, you can withdraw more money than what has been deposited. If you use this facility within the given limits, you will have to pay an interest at the agreed rate and if you exceed the limit, a higher interest rate will be applicable. It is commonly used by business owners.
3. Bill Discounting: In the process of bill discounting, you get immediate funds on large invoices. You can use the invoices to get instant access to funds and the same amount will be collected by the lender from the customer at the end of the credit period. You will have to provide documents that authenticate the transaction.
4. Working capital loan: This loan is designed to meet your working capital requirements. If you ever fall short of working capital in the business, you can apply for a loan and ensure that the business operations continue without any trouble. The tenure of the loan is short and there is a limit to the loan amount.
Research the market before you apply for the loan. You can easily get information about different lenders online and make a comparison on their offerings. Consider your purpose for borrowing and then approach a lender. Never rush this decision because the lender and the terms of repayment will make a huge difference to your budget. If you are looking for a secured loan, you will have to understand the terms of repayment before you hypothecate your property.
Any business owner is eligible to apply for the loan. You can be a sole proprietor, partnership or a corporation. In order to apply for the loan, you need to fill up the application form and submit necessary documents. Understand the terms and conditions of the loan before you make the application. Choose a lender that offers the loan at a low interest rate and has a flexible repayment tenure. If you have a positive credit history, your loan will be approved at the earliest.