10 Business Loans To Look Out For, If You Are An Entrepreneur

10 Business Loans To Look Out For, If You Are An Entrepreneur

Business finance may seem tricky at times. Especially in a hyper-competitive business environment. As a business owner, you may often find yourself wondering about the best possible way to fund a particular business need. Business needs are varied and many. It can be purchasing assets such as land, leasing a factory or shop, purchasing new machinery, working capital requirements, or basic operating expenses such as overheads and salaries.

It is important to note that there are different types of business loans in India designed for various purposes and needs. In this guide, we walk you through the common types of business loans in India. Analyse the features, pros and cons of each business loan product and find the right one that works for you.

Top 10 Business Loans Available in India

1. Term Loan

One of the most common types of business finance is a term loan. The loan could be secured or unsecured. The amount available depends on several factors like the business’s credit history, credit score, duration in business, annual turnover and so on.

Key Points

  • Loan tenure ranges from 1 to 5 years if the loan is unsecured, and can go up to 15 to 20 years for secured business loans.
  • This loan is taken for a specific purpose, normally for capital expenditure.
  • The bank or financial institution disburses the approved fund as a lump sum amount.
  • Interest rates charged vary from 8{ab3ab9322904d62cb1d91898e7bcd16db9524eed511c9d173a1e2c87c96b9e1c}–15{ab3ab9322904d62cb1d91898e7bcd16db9524eed511c9d173a1e2c87c96b9e1c}.

2. Start-up Loan

Start-up loans are for new business ventures. Applicants for such loans may not have a great credit history for their company due to lack of business experience. Thus, to judge the business loan eligibility, the lender will take into account the borrower’s personal credit scores along with that of the company. The business owner must submit proof of the business existence and registration. 

Key points

  • No collateral or security needed.
  • Easy and flexible repayment tenures.
  • Minimal documentation.
  • The funds are swiftly disbursed to the applicant’s bank account.
  • The interest rate charged by the lender will depend completely on the applicant’s credit history.

Here are some of the favourable interest rates from leading lenders for startup loans:

LendersInterest rates
Bajaj Finserv18{ab3ab9322904d62cb1d91898e7bcd16db9524eed511c9d173a1e2c87c96b9e1c} p.a. onwards
HDFC Bank15.75{ab3ab9322904d62cb1d91898e7bcd16db9524eed511c9d173a1e2c87c96b9e1c} p.a. onwards
TATA Capital19{ab3ab9322904d62cb1d91898e7bcd16db9524eed511c9d173a1e2c87c96b9e1c} onwards
Kotak MahindraAt the discretion of the bank
Fullerton India17{ab3ab9322904d62cb1d91898e7bcd16db9524eed511c9d173a1e2c87c96b9e1c} p.a. to 21{ab3ab9322904d62cb1d91898e7bcd16db9524eed511c9d173a1e2c87c96b9e1c} p.a.

3. Working Capital Loan

Working capital loans are generally provided to businesses to fund working capital. The bank sets a limit in a working capital loan for the business to take a loan and the amount can be utilized in a specific purpose only, that is, the working of the business and cannot be utilized in any other way. This type of loan is sanctioned against the mentioned purpose and business plan.

That is why lenders are more comfortable in giving working capital loans than any other type of loans as the entire audit and control is under their supervision and they are in full control of the profitability and the cash flow of the business and therefore the chances of default is low.

Key points

  • Minimal rate of interest.
  • Mostly against collateral.
  • Interest charged only against the amount used.

Note: To understand the monthly instalment, you can take the help of the business loan EMI calculator available on CreditMantri.

4. Loan against Property for SME

Loan Against Property (LAP) is offered by lenders as a secured loan for mortgaging a self-owned property such as residential, commercial property including a house, apartment, office or even a shop.

Having a self-owned property with a clear title is mandatory for availing this loan. This loan can be used for various business requirements such as expansion of business, investing funds for business growth, steady cash flow, or even meeting short term or emergency business needs.

This type of loan is better than seeking funds from investors as they may claim a part of your profit in return for the funds invested. Loan against property is curated in such a way as to meet the requirements of small business owners for their business growth.

5.  Overdraft

Financial institutions provide overdraft facilities against securities or collateral especially in terms of fixed deposits. An overdraft limit is fixed by the lender after they have analyzed your credit history, repayment history, business cash flow and your relationship with the institution. You can borrow the amount required and pay interest for only the utilized amount. The funds can be used in this manner as long as the principal and the interest amount are repaid as per the decided term.

6. Business Loans for Women

India has taken a quite a significant jump in recognizing women entrepreneurs and their needs to survive the business field. Besides the government, many financial institutions are offering special schemes on business loans for women entrepreneurs. In fact the government of India has a number of initiatives in place to encourage women in establishing small to medium-sized businesses.

Here are the 5 of the most popular small business loans for women entrepreneurs in India:

  1. Cent Kalyani – Central Bank of India
  2. Stree Shakti Package – SBI
  3. Shringaar and Annapurna -Bhartiya Mahila Bank
  4.  Synd Mahila Shakti – Canara Bank
  5. Shakti Scheme – Bank of Baroda

Key points

  • Discounted interest Rate for Women Borrowers varies from bank to bank.
  • No minimum loan amount limit and maximum up to Rs. 75 Lakhs.
  • Repayment period from 12 months – 5 years.
  • No collateral required.
  • Loan Type: Term Loan (Short or Long term), Secured and Unsecured loan, Working Capital Loan.

7. Equipment Financing

Equipment financing or machinery loan is majorly used by manufacturing businesses, as they require costly equipment for daily operations of their business. Out of all types of loans available in the market this has proven to be efficient in terms of machinery purchase. This is because machinery loans are specific in nature, wherein the equipment in question is taken as collateral along with some other security. The interest rates could be lower than those charged on term loans.

There are various types of equipment financing such as:

  1. Manufacturing equipment loan
  2. IT and office equipment loan
  3. Construction equipment loan
  4. Corporate aviation equipment loan
  5. Medical equipment loan
  6. Electronic and appliances.

Popular banks and NBFCs offering equipment financing are:

Bank/NBFCInterest rateType of Equipment Loan
Bajaj Finserv18{ab3ab9322904d62cb1d91898e7bcd16db9524eed511c9d173a1e2c87c96b9e1c} onwardsAll equipment
Bank of BarodaCompetitive interest rateConstruction and mining equipment
DHFLAt the discretion of bankPlant and machinery Medical equipment
HDFC bank 8.93{ab3ab9322904d62cb1d91898e7bcd16db9524eed511c9d173a1e2c87c96b9e1c} onwardsFor commercial or construction equipment only
ICICI bankAt the discretion of bankConstruction loan
Kalupur bank 9.50{ab3ab9322904d62cb1d91898e7bcd16db9524eed511c9d173a1e2c87c96b9e1c} onwardsManufacturing and service sector
Kotak Mahindra bank 8.90{ab3ab9322904d62cb1d91898e7bcd16db9524eed511c9d173a1e2c87c96b9e1c} onwardsFarm equipment Construction equipment

Key points

  • Lenders offer up to 90 to 100{ab3ab9322904d62cb1d91898e7bcd16db9524eed511c9d173a1e2c87c96b9e1c} finance for new equipment.
  • Mostly they are unsecured loans, as the machinery purchased acts as collateral.
  • Pre-approval in equipment finance.
  • Flexible loan option.
  • Competitive interest rates.

 

8. Invoice Financing

Usually most business owners sell their goods and services to their customers on the basis of credits. It means that customers don’t generally pay upfront for such goods and services, and instead pay at a later date. Here, when they sell their goods or services to customers, it generates an invoice payable upto 3 months.

With Invoice financing businesses can avail instant funding against such invoices, through this process:

  • An invoice is forwarded to the chosen lender by the business owner.
  • The lender reviews the invoice and can finance upto 80{ab3ab9322904d62cb1d91898e7bcd16db9524eed511c9d173a1e2c87c96b9e1c} of the invoice amount within 24-72 hours.
  • The business owner can then wait for the customer to settle the remaining invoice amount. If the outstanding amount is unpaid, the business owner can make the payments, or get the lender to do it on their behalf, depending on the agreement.
  • When the  invoice amount is settled by the customer, business owners receive the remaining amount of their invoice’s value, after deducting the stipulated service fee levied by the lenders.

9. Merchant Cash Advance

Merchant cash advance is vastly popular among small and medium scale business owners. It gives them the facility of receiving a lump sum amount in advance on the security of daily or future credit or debit card transactions. 

Although the interest rate is comparatively on the higher side than those of traditional term loans, it is popular among merchants, as its repayment facility is linked with daily sales collections from Point of Sales (POS) machines placed at shops, malls or the respective workplace. The merchant cash advance is an advantage for the merchants who cannot get regular bank loans due to lack of documentation and low credit scores.

10. Business Credit Card

For business owners, a business credit card is not the very first option. But if there is a need for a handy, on the go finance then this is where a business credit card comes in the play.

Why purchase a business credit card?

When you purchase a business credit card, not only do you get the benefit of readily available credit limits, but at the same time you may earn rewards against payments done using the card. Many credit card lending agencies offer attractive benefits such as introductory cash back on amount spent, insurance cover, etc. However, the rates could be higher than that of traditional business loans.

To Conclude

It is advisable to select a business loan based on your individual business profile and requirement. The above-provided information will help you as a business owner decide the type of financing best suited for your venture.

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