Types of business loans in India

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The business loan is a type of financial assistance one can avail to meet various needs of a new or growing business. The lender feels comfortable to offer a business loan to a borrower if the application is backed by a strong ‘business plan /project report’ with decent cash flow goals and capital gain much greater than the interest of the secured loan. If you don’t have capital in hand, it is better to go for business loans in the following scenarios.

Planning to establish a new business
Planning a rapid business expansion
Need new equipment and machinery for your business
Require additional working capital for your business
Need capital infusion in the business to turn it profitable
Need capital to replay previous loans

What are Types of Business Loans?

Based on its nature, the business loans are categorised into eight types.

Term loans

Lenders offers both secured and unsecured business loans based on state and need of the business. There are three types term loans available with the lenders, these include: a) short-term loans, b) long-term loans and c) intermediate loans. The repayment schedule of term loans can be monthly or quarterly. Based on the term loan secured, the type of interest can be floating or fixed. Part of popular schemes such as MUDRA, PMEGP etc comes under this

Demand loans

A demand loan needs to be repaid based on the demand schedule of your lender. Banks and the financial institutions offer both secured and unsecured demand loans. The repayment tenure of demand loans extends up to maximum 12 months

Loan against securities

Such loans are offered based on bank approved financial securities such as insurance policies, mutual funds, demat shares, saving bonds, fixed maturity plans etc. Such loans can be secured to mitigate an immediate financial crisis

Invoice discounting

During a financial crisis, the business can secure instant cash from the lender by submitting invoices of credit sale as security

Letter of credit facility

This type of business loan typically used in international transactions. This type of loan can be availed based on the creditworthiness of buyer’s bank when the seller and the buyer do not know each other. This ensures on-time payments to the seller based on the letter of credit offered by the bank

Cash credit facility

It is similar to the overdraft facility. In this facility, the maximum withdrawn limit is set by the lending bank. The repayment tenure can be renewed for such loans in each 12. For working capital management this loan can be used .

Bank guarantee

It is a type of secured loan and can be availed with a mortgage or bank guarantees such as property as collateral.

Women-specific loans

Majority of the banks and Non-Banking Financial Companies (NBFCs) offer exclusively women specific loans to promote women entrepreneurship. These loans come with a plethora of benefits such as lower interest rates, flexible repayment tenure etc.