Taking a loan for business is a common thing and most of the business owners does this either to survive or to grow their business. We all know that the inflow of cash is very important for any kind of business. Without cash inflow no company can survive nor can an entrepreneur. To overcome any kind of financial cash crunch business owners generally take a business loan. People generally believe that business loan is the only option to finance their business but this is not completely true. Business loan is one of the most common financial tool to finance one’s business but it is not the only one. This fact is not known to all that there are many loans which one can get being a business owner.
Top Loans You Can Get as a Business Owner
Term loans are generally a short term loan whose tenure period varies from two to five years. This loan can be given to an individual but this is mostly opted by small business owners. A term loan is generally a loan against any asset such as big machine or property. This loan can be taken by the business owner for the purchase of inventory or even to pay staff. The benefit with this loan is that the interest payable is generally less. Generally lenders take out the CIBIL score of the applicant to have a look at the credit and financial history before approving the loan application. The loan is only sanctioned when the applicant have a good credit score. A credit score of 750+ is generally considered as a good CIBIL. A term loan with bad credit is also possible but in that case the applicant will be charged more on interest as compared to other applicants. The Term Loan can be a good option for the business owners to get the capital but there are more options available.
Line of Credit Loans
Line of Credit Loans are one of the most useful loan when it comes to small scale businesses.
A Business Line of Credit is basically an account which the business owners have with a bank or a credit union. Having this account allows a business owner to borrow money when needed without going through a lengthy process. There is a pre-set limit, upper limit for the borrowing. One can borrow money within that limit. Interest is imposed only when one takes money from that account and it is imposed only on the borrowed amount. When the borrowed money is repaid, the available credit line is replenished. The best thing about having a line of credit is – one can borrow as many times as required till one reaches the upper limit of the credit line. Being in a business requirement of fund arises at many places and many times. If one goes again and again for a loan it will consume lots of time. Having a Line of Credit for a business is best. One can borrow money whenever needed.
This loan is also considered as a good option in case to take a loan for a business. Let’s understand what is it- talking about any loan, the repayment is generally done form of EMIs which is a combination of some part of Principle and some part of interest. But here the principal amount is paid in lump sum at the end of the tenure and interest is paid every month in EMIs. This loan is considered good for business as there are some phase where you are expecting payment from your client and you are certain that a particular amount of money is going to come to you in near future. So, in cases like this you can opt a balloon loan. Where you need to pay mostly on the interest and the principal amount can be paid once you receive the payment from the client.
Loan Against property or Mortgage loans
In a loan against property the borrower gives any kind of property whether it can be a residential one or commercial or even vacant land as collateral and security to the bank against their borrowing. The fund which they get through the loan against the property can be used in the business. The use of money in business is not restricted and hence can be used for any purposes including advertising, research, business expansion, staff salary, starting a new business, working capital requirement, capital asset requirement, buying land and many more. As this loan is secured by the collateral as a property the interest imposed on this loan is usually less than other secured loans. Even the lenders find it less risky stuff and hence gets ready to lend easily.
Properties or asset which can be used as collateral for loan against property: Any commercial or residential or vacant land property
Tenure Period: 3 to 15 years based the amount borrowed and on the borrower profile.
Loan against Shares or Financial Securities
A loan can be easily raised against shares or financial securities such as mutual fund units, demat shares, fixed maturity plans (FMP), exchange traded funds (ETF), insurance and policies, fixed deposits savings bonds. The money which you get against these shares and financial security can be used for many purposes and business is one of them. But it is important to know that not all shares and mutual funds can be used to get loan. One can loan only against those shares which comes under the banks policy. This loan also comes under the secured loans hence the interest rate regarding this loan is also reasonable or you can say less as compared to other unsecured loans.
Business Installment Loans generally called BIL are same as that of other installment loans. This loan comes under the unsecured loans. The tenure of this loan is very short which is generally 3 years. This loan is one of the best option available to fulfil the quick and immediate requirements. A business owner can get this loan for-
- Working capital requirements
- Inventory purchase
- To fulfil short term cash needs
- Finance for business expansion or to acquire another business
- For giving salary to the staff
- To cover the gap between delayed credit limit enhancement
Bridge Loans are the one which helps in bridging the gap between a short-term cash requirement in a business and long-term loan. This loan is generally given from a minimum tenure of one year and the tenure to a maximum is of two years. The interest rate regarding this loan is normally high and it require some asset in the form of collateral or security against the loan.
A bridge loan allow a business owner to accept the investor’s check at terms that will be decided later or to get the payment later. Meanwhile when the owner is in need of funds he/ she can go for the Bridge Loans. Here one can get the desirable amount against some equity easily. The borrower can repay the borrowed amount when they get the money from their clients or investors. This is the best way to bridge the gap in-between.
Small Business Loans
Small Business Loans provide funds to the small business owners to fulfil the financial needs which are raised in a small business. It is available through many banks. The interest rate regarding this loan is reasonable only. There are even many schemes governed by our government for the small business loans. Small business needs ore support in terms to grow and flourish and these SMEs are the one which contribute a major part in the country’s economy. Hence Government of India has come up with many schemes for the betterment of small industries and businesses. Some of the facility provided under this are-
- Working capital finance
- Term loans
- Corporate term loans
Some of the bank from where you can get small business loans are-
State bank of India, Bank of Baroda , Andhra bank and many more.
Loan Schemes and Facilities initiated by the Government of India
- National Small Industries Corporation Limited (NSIC)
- Small Industries Development Organisation (SIDO)
- Small Industries Development Bank of India (SIDBI)
- National Bank for Agriculture and Rural Development (NABARD)