Types Of Business Loans

In Mark Twain’s words, “The lack of money is the root cause of all evil”, especially when we know how a liquidity crisis can deter businesses from achieving their goals. But as an entrepreneur, you need not worry about NOT meeting your business objectives, especially when you have access to various types of business loans at your disposal.  Then again, it’s imperative to do your homework about these varied types of business finance before you plan on applying. Being out of your depth in these matters can land you in unnecessary hassle later. To help you navigate through the same, we have compiled a few of the top credit options for businesses in the following section. Glance through them to pick the one that suits you the most.

Top Credit Options For Business – In Brief

These are a few sources of business credit options that are popular among entrepreneurs –

• Term Loans

This credit facility comes with a specific tenure and can be availed either as a secured or unsecured loan facility. You can use the sanctioned loan amount to meet multifarious expenses, ranging from salary payment to purchasing high-end machinery.  The amount you can raise through this credit option depends entirely on your creditworthiness, among other factors. 

• Working Capital Loans

“Working capital is the backbone of a company.” Almost all operational activities depend on how much capital you have to meet your everyday expenses. To account for its shortage, businesses can consider this loan option.   Typically, a working capital loan comes in handy for meeting expenses like rent, salary, utility bills, etc. In exceptional cases, seasonal businesses apply for this credit to cushion the impact of sales fluctuation during a low business cycle or offseason. 

• Equipment Loans

Organisations may take out this credit option to finance the purchase of high-end machinery or other fixed assets. Hence, it is also otherwise known as a machinery loan.  It is a popular funding option for entities like manufacturers and traders engaged in industrial operations. 

• Overdraft 

It is also known as a Credit Line and is essentially a revolving credit facility that allows businesses to withdraw funds from a pre-set limit. The USP of this business loan option is that borrowers must pay interest only on the amount withdrawn and not on the sanctioned limit. You must note that the credit limit is renewed every year and is fixed as per the borrower’s repayment pattern. Also, the loan amount is sanctioned against security.  

• Start-Up Loan

Most business loans cater to enterprises with substantial business vintage, which is disadvantageous to start-ups. However, with the availability of target-specific credit options like start-up loans, new business owners can access capital readily and meet their cash flow-related requirements.

• Business Loan Against Property

 “Real estate is an imperishable asset, ever-increasing in value.”  It is a secured business loan option that allows enterprises to leverage their commercial real estate holdings to take out business finance.  Typically, the sanctioned loan amount depends on several factors, including the property’s value in question. Make sure to get your commercial property appraised and valued before applying for such a loan. 

• Government-backed Loans For Business

Did you know the MSME sector in India was responsible for the employment of 110 million individuals in 2020? Since both small and micro enterprises contribute significantly to the country’s economic growth, the government has launched multiple credit schemes to support them. The popular credit schemes directed towards entrepreneurs include – MUDRA loans, MSME Loan in 59 Minutes, Credit Guarantee Fund Scheme for Micro and Small Enterprises, Credit Linked Capital Subsidy Scheme, etc. However, each of such loan schemes come with stringent eligibility criteria.  In case you do not want to add on to your existing debt by applying for a business loan, you can opt for alternative funding options like invoice discounting. Under such a financing option, you can raise funds against the unpaid invoice amount and readily meet immediate cash flow and working capital-related requirements. Note that fintech companies that extend invoice discounting services help release capital tied-up in unpaid invoices but at a discounted rate. On maturity, they release the remaining amount after deducting the applicable service charge. 

Bottom Line

Several business loan options are available in the market today to help you resolve a cash flow crisis. However, every option may not suit your requirement. So, to ensure suitability and make the most of these funding options, you should check and compare those before deciding.