What Are Different Types Of Business Loans?

Operating a business is complex. Sometimes, a disturbed cash flow can affect operations. As your capital needs vary according to the type of business, a loan for your business can help you avoid losses in times of fund shortages. Therefore, applying for a suitable business loan at this juncture is crucial.

What Are Business Loans?

Business loans are financial products that banks and NBFCs offer to business owners who want to raise immediate capital to cover day-to-day expenses, buy equipment, or for expanding the business. Lenders analyze the business owner's creditworthiness through factors such as credit score and business turnover.

Based on these factors, the lender proposes a business loan to repay to the lender with interest within the loan tenure.

Business owners utilize business loans owing to numerous benefits including

1. Immediate Capital:

Business loans allow companies to raise quick capital with an application process hosted entirely online.

2. Nominal Interest Rates:

Business loans include affordable and attractive interest rates to avoid creating a financial burden on the borrower.

3. No Collateral:

Business loans do not require pledging assets as collateral to qualify for the loan.

Types Of Business Loans In India

Raising capital is never the same for businesses as they differ in operations, size, and potential expenses. Hence, banks and NBFCs have designed numerous business loan products to cater to every business type and capital need.

If you are a business owner looking to raise capital through a business loan, you must understand all the types of business loans in India.

1. Term Loans

They are short-term business loans to raise immediate capital without having additional benefits. These loans are short-term, meaning they come with a loan tenure of 1-5 years. Such loans require the borrower to mention the purpose of taking the loan, and the amount sanctioned is based on the business’ credit history.

2. SME Loan

Small business loans or SME loans are targeted toward fulfilling the capital needs of small businesses. Such loans include products such as Line of Credit (LOC) to cater to all the credit needs of small and medium enterprises that do not have a high capital investment or monthly turnover. They include a nominal interest rate to fulfill short-term capital requirements.

3. Working Capital Loans

These loans help fulfill short-term and current liabilities such as day-to-day or approaching expenses such as paying rent or employee salaries. Such loans are short-term business loans and ensure that a business covers its legal liabilities and sustains in the long run.

4. Commercial Business Loans

These loan products offer business owners immediate capital up to Rs 50 lakh with a 3-5-year tenure. The loan is for businesses that are at least running for a year and are profitable. The loan product is for medium-sized enterprises and offers flexibility with multiple repayment options and quick disbursal into the bank account.

5. Start-Up Loans

Startups have become widely popular for which banks and NBFCs have designed startup loans. These loans do not require pledging any valuable asset as collateral and offer repayment flexibility to budding entrepreneurs. However, since entrepreneurs do not have prior creditworthiness to run a business, the interest rate may be higher than traditional loans.

6. Loan Against Securities

This business loan product offers an amount against the value of your investments in the stock market, insurance policies, fixed deposits, gold, mutual funds, etc. Such loans can offer up to 75% of the total investment value to business owners and do not require pegging any other asset as collateral.

7. Equipment Financing

This business loan product allows business owners to raise immediate capital to buy equipment such as machinery to ensure the operations run smoothly and the business increases sales. Equipment loans also provide capital to business owners to upgrade or repair existing company equipment.

8. Business Credit Card

This facility allows business owners to pay for various business-related expenses without paying for them from their capital. Business credit cards offer benefits, including credit points, refunds, insurance coverage, etc. They do not require any collateral and are an unsecured credit facility. Business credit cards also allow borrowers to spend interest-free funds but levy heavy interest after the end of the free limit.

Avail Of An Ideal Business Loan From IIFL Finance

IIFL Finance offers financial services like customized and comprehensive business loans. The business loan does not need collateral and offers instant funds up to Rs 30 lakh with a quick disbursal process. The application process is entirely online with minimal paperwork with attractive and affordable interest rates to ensure the repayment doesn’t create a financial burden.

FAQs

Q.1: Can I use the loan amount to invest in any type of business?
Ans: Yes, you can use the loan amount offered by IIFL Finance through its business loans to invest in any type of business. However, the end use should be for business purposes.

Q.2: What are the benefits of IIFL Finance business loan?
Ans: The benefits of an IIFL Finance business loan include:
• Instant loan amount up to Rs 30 lakh
• An easy and online application process
• Instant credit of loan amount to your bank account.
• Affordable EMI repayment options

Q.3: Do I need collateral to take a business loan from IIFL Finance?
Ans: No, IIFL Finance business loan does not require pledging any asset as collateral to take the business loan.