Are you finding new ways to expand your business and worried about finance shortage? Need for money always exists and in order to grow in business investment at the right time is very essential. Are you sure your business expansion will generate additional profits and sales? Then money should not be a constraint. There are many banks out there that are ready to offer equipment loans for business expansion and growth. Increasing business in order words means increasing the current assets of the business, that is by way of increasing fixed assets and inventory or even at times hiring more people.
Banks understand there is time lag between investing into business expansion and generating return from the same. There are lots of business loans for expansion and line of credit offered by banks and NBFCs. These are listed below in order to help you to compare and decide which style best suits your business needs.
- Line of Credit Loans:
This is considered as one of the best type of business expansion loans mostly for small businesses. It is a short term loan offered to the businesses. The interest in paid exactly for the period from when loan is taken until the repayment date. This type of loan can be used for purchase of inventories and for the payment of operating costs. However, this type of loan cannot be used for real estate transactions.
- Installment Loans:
This is an option wherein banks will offer bulk amount as loan and the same can be repaid in installments. The installments can be in regular intervals such as monthly, quarterly, bi-weekly and so on. This type of loan can be used by businesses for all requirements. The interest for this as well is calculated from the first date until the repayment of the loan amount. There are no penalty charges for pre-payment of loan and thus you can save a lot of income.
- Interim Loans:
This type of loan is mainly used by businesses that are involved into constructions. Building contractors will make use of this loan to complete the construction and then the same will be mortgaged until the payment of the loan is complete. The rate of interest for this type of loan is less as banks have security and there is less risk of loss.
- Balloon Loans:
This type of loans are mainly used only by businesses, borrower will have to pay only the interest of the loan amount until the final payment date. The principal amount will be due on the last date and the same will have to be made as a full balloon payment. Business that do not get immediate return on their investment makes use of this type of loan for capital investment, inventory purchases and even for working capital requirements. Rate of interest for this type of loan is higher as compared to other types of loans and the reason for this is getting the flexibility of just paying the interest and not anything towards the principal amount.
- Letter of Credit:
Those businesses that are involved into international trading make use of Letter of credit. This is used to guarantee payments to the material or product suppliers who are in different countries. This document holds responsible to pay to supplier specific amount on a pre-determined date. This is a common mode of financing short term money in businesses that are involved in international activities.
- Secured and Unsecured Loans:
Secured loan is where there is a need for guarantee or security against the sum borrowed like a fixed or movable asset. In case of default of the loan amount, ownership of the security will be taken over by the bank. Usually business loans are secured loans. The interest rate of these types of loans will be comparatively less as the risk for the lender is low. Unsecured loan does not require any security, but the lender will charge a high rate of interest on the loan amount borrowed. In case of default, the lender will seek legal assistance for the loss incurred. It is just as higher the risk of the loan amount, higher will be the rate of interest.
In India, almost all type of legitimate businesses get financing support from banks and NBFCs. Making use of the right source of funding is left up to each business as various factors such as repayment capacity, interest charges, requirement of loan amount has to be taken into consideration. Make use of the above information to decide which type of loan best suits your need of equipment financing.