Business loans are a form of financial assistance that can be used to meet the different demands of a changing or rising enterprise.
The lender is confident of granting a business loan to a borrower if the application is supported by a good business plan or a project report with respectable cash flow targets and capital gain well greater than the secured loan interest.
When you don’t have money in hand, then in the following circumstances it’s easier to go for business loans.
- Planning to start a new company
- Planning a rapid expansion
- Want new equipment and machinery for your company
- Requires extra working capital for your company
- Requires injection of capital into the company to make it profitable
- Required capital to replace previous credits
Types of business loans
The business loans are divided into eight categories according to their nature.
Financial institutions provide both secured and unsecured commercial loans depending on the economy and company needs. The borrowers are issued with three forms of term loans, which include:
a) short-term loans, b) long-term loans, and c) intermediate loans.
Term loans can be repaid monthly or annually. The form of interest will be floating or fixed, depending on the term loan secured. This includes part of famous schemes like MUDRA, PMEGP, etc
A demand loan has to be paid depending on the lender’s demand schedule. Banks provide demand loans both secured and unsecured. The demand loan repayment duration stretches to a total of 12 months
Loan against securities
These loans are being provided based on financial securities approved by banks such as insurance policies, mutual funds, etc. These loans can be pledged to relieve an acute financial crisis
In a financial crisis, the company can protect the lender’s immediate cash by sending credit sale invoices as security
Letter of credit facility
Such a form of commercial loan is usually used for international transactions. This form of loan can be used if the seller and buyer may not recognize each other, depending on the creditworthiness of the buyer’s bank. That guarantees on-time payments to the seller on the basis of the bank’s letter of credit
Cash credit facility
This is identical to the overdraft facility. Within this facility, the lending bank determines the maximum withdrawn limit. The term of repayment for these loans that be extended in every 12 years. This loan may be used for the management of working capital.
This is a form of secured loan, which may be used as collateral for a mortgage or bank guarantees such as land.
Loans exclusive to women
Bank majority and Non-Banking Financial Companies (NBFCs) provide unique loans specifically for women to encourage entrepreneurship. Such loans come with a variety of advantages such as lower interest rates, flexible terms on repayments, etc.