Is your business attempting to transition from a start-up to an SME? Making the shift requires strategic planning, but also needs a substantial amount of investment to get the ball rolling.
Taking a business loan will allow you to materialize your idea and take it forward. However, there are quite a few types of business loans in India and it would be wise to go over every option available on the market before you make a decision.
To help you along, here are a number of business loan types explained:
Term Loan
You can opt for a term loan if acquiring long-term fixed assets is the objective. Such assets include machinery, land, or industrial structures such as sheds, buildings, and factories. The rate of interest for such loans may either be fixed, or may be a floating rate that fluctuates depending on the economy. The tenure for repayment of a term loan is normally between 2-10 years and the repayment schedule will either be on a monthly or quarterly basis.
A margin of 15-25 % is associated with such loans, which means that the amount of the loan will lie between 75-85 % of the total expenditure.
Loan Against Property
As the name suggests, this kind of loan will provide you with funds, if immovable property like commercial/residential/vacant land is handed over to the bank as collateral. The money you receive can be invested in a business venture or to fulfil any other purpose. How you choose to spend the money is entirely up to you, but the repayment tenure is usually between 3-15 years with zero margin.
Loan against Gold
A business loan that requires you to pawn your gold—jewellery, bars, coins—is called a loan against gold. While money received can be spent for business purposes in any way you see fit, the maximum loan amount provided by banks in India is not more than INR 20 lacs per individual. The margin requirement is 5% and the tenor for repayment is 12-30 months based on the borrower profile.
Loan against Shares/Financial Securities
Such a loan involves pledging shares and financial securities such as demat shares, mutual fund units, fixed maturity plans (FMP), exchange traded funds (ETF), insurance policies and savings bonds. However keep in mind that only securities which are covered under a bank’s policies can be pledged. There isn’t any margin and the tenure for renewal is 12 months.
Cash Credit Facility
Cash credit facility is a loan granted for pledging current assets/stocks of an organisation in the form of inventory/receivables. The margin requirement for such a loan is between 70-80%, and renewal must be done annually.
Letter of Credit (LC) Facility
An LC facility is another credit option which results in the bank providing you with the money to make payments for a purchase. If you’re a buyer who cannot pay for a purchase you made, the bank will cover the outstanding amount. Such facility is usually provided for international/domestic transactions in which the buyer and the seller are not personally acquainted as they operate out of different countries. With a renewal tenure of 12 months, and a margin of 60-80%, assets financed include capital and inventory.
Bank Guarantee
A bank guarantee states that if a debtor fails to satisfy the terms of a contract, the liabilities will be paid for. With a margin of 20-90% and a tenure based on requirement, they can be categorised as:
If your business is small scale, you needn’t worry. There are a few types of small business loan specifically devised to meet all your demands. Here they are:
Micro Loans
You can opt for such a loan from micro lenders (non-profit organisations) if you’ve a solid business idea, and have a plan-of-action to make a profit. The tenure for repayment is generally 6 years.
Government Loans
You can procure a loan from the government if you have a profitable business plan, a scheduled plan of repayment and, no criminal records. They also provide funds to the elderly who have a business idea and to individuals from minority groups.
Bank Loans
A majority of banks don’t finance small businesses, but there are a few who provide monetary assistance if you’re able to convince them about the turnover of your business, and schedule of repayment.
Loans for Larger Businesses
Larger businesses also provide loans considering the location, market and growth potential of your business idea. Some of the loans covered under this are:
Franchise Loans
Export Financing
Financing—which includes an initial investment and a constant source of funds—is essential to a business’ survival. Here are a few types of business financing options:
Utilizing your savings for an investment.
Borrowing funds from friends and family.
Applying for a loan from banks.
Approaching incubation centres set up by governments and corporates with your idea.
Pitching your idea to venture capitalists (VCs).
Taking a business loan will allow you to materialize your idea and take it forward. However, there are quite a few types of business loans in India and it would be wise to go over every option available on the market before you make a decision.
To help you along, here are a number of business loan types explained:
Term Loan
You can opt for a term loan if acquiring long-term fixed assets is the objective. Such assets include machinery, land, or industrial structures such as sheds, buildings, and factories. The rate of interest for such loans may either be fixed, or may be a floating rate that fluctuates depending on the economy. The tenure for repayment of a term loan is normally between 2-10 years and the repayment schedule will either be on a monthly or quarterly basis.
A margin of 15-25 % is associated with such loans, which means that the amount of the loan will lie between 75-85 % of the total expenditure.
Loan Against Property
As the name suggests, this kind of loan will provide you with funds, if immovable property like commercial/residential/vacant land is handed over to the bank as collateral. The money you receive can be invested in a business venture or to fulfil any other purpose. How you choose to spend the money is entirely up to you, but the repayment tenure is usually between 3-15 years with zero margin.
Loan against Gold
A business loan that requires you to pawn your gold—jewellery, bars, coins—is called a loan against gold. While money received can be spent for business purposes in any way you see fit, the maximum loan amount provided by banks in India is not more than INR 20 lacs per individual. The margin requirement is 5% and the tenor for repayment is 12-30 months based on the borrower profile.
Loan against Shares/Financial Securities
Such a loan involves pledging shares and financial securities such as demat shares, mutual fund units, fixed maturity plans (FMP), exchange traded funds (ETF), insurance policies and savings bonds. However keep in mind that only securities which are covered under a bank’s policies can be pledged. There isn’t any margin and the tenure for renewal is 12 months.
Cash Credit Facility
Cash credit facility is a loan granted for pledging current assets/stocks of an organisation in the form of inventory/receivables. The margin requirement for such a loan is between 70-80%, and renewal must be done annually.
Letter of Credit (LC) Facility
An LC facility is another credit option which results in the bank providing you with the money to make payments for a purchase. If you’re a buyer who cannot pay for a purchase you made, the bank will cover the outstanding amount. Such facility is usually provided for international/domestic transactions in which the buyer and the seller are not personally acquainted as they operate out of different countries. With a renewal tenure of 12 months, and a margin of 60-80%, assets financed include capital and inventory.
Bank Guarantee
A bank guarantee states that if a debtor fails to satisfy the terms of a contract, the liabilities will be paid for. With a margin of 20-90% and a tenure based on requirement, they can be categorised as:
- Performance Guarantee
- Bid Bond Guarantee
- Financial Guarantee
- Advance Payment Guarantee
- Foreign Bank Guarantee
- Deferred Payment Guarantee
If your business is small scale, you needn’t worry. There are a few types of small business loan specifically devised to meet all your demands. Here they are:
Micro Loans
You can opt for such a loan from micro lenders (non-profit organisations) if you’ve a solid business idea, and have a plan-of-action to make a profit. The tenure for repayment is generally 6 years.
Government Loans
You can procure a loan from the government if you have a profitable business plan, a scheduled plan of repayment and, no criminal records. They also provide funds to the elderly who have a business idea and to individuals from minority groups.
Bank Loans
A majority of banks don’t finance small businesses, but there are a few who provide monetary assistance if you’re able to convince them about the turnover of your business, and schedule of repayment.
Loans for Larger Businesses
Larger businesses also provide loans considering the location, market and growth potential of your business idea. Some of the loans covered under this are:
Franchise Loans
Export Financing
Financing—which includes an initial investment and a constant source of funds—is essential to a business’ survival. Here are a few types of business financing options:
Utilizing your savings for an investment.
Borrowing funds from friends and family.
Applying for a loan from banks.
Approaching incubation centres set up by governments and corporates with your idea.
Pitching your idea to venture capitalists (VCs).
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