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Types of Small Business Loans: How to get them?

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Types of Small Business Loans: How to get them?

A small business loan usually referred to as a commercial loan, is a type of lending product created especially for capital in businesses. Small business loans are designed to meet any sudden needs that arise from fresh opportunities. These loans can be backed by collateral or unsecured, depending on the required amount, the loan type, and the borrower and lender’s connection.

 

How to apply for a Small Business Loan?

Depending on your creditor, the application process for a small business loan could take a few minutes to several hours. But before you start the loan application procedure, you need to do a lot of planning. This includes choosing the right lender, keeping documents handy, planning for EMIs, etc. To better manage your monthly EMIs and stay inside your budget, you can utilise the free online business loan eligibility calculator and business loan EMI calculator before applying for a business loan. These tools will let you know the maximum loan amount you may be eligible for and the best tenure to choose.

Here are 10 distinct small business loans you should know about –

1. Term Loan

Leading lenders most frequently provide term loans as a means of business financing. The amount made available through this loan is heavily influenced by the company’s credit standing. The typical loan term for this type is between 1 and 5 years. The borrower shall identify the use for which the loan shall be made. Capital expenses, it is the best option.

2.Upcoming small business loan

An Upcoming small business loan, as its name suggests, is provided to pay for the costs associated with launching a new firm. Only once the lender has taken into account the anticipated turnover numbers of the business are an applicable interest rate, loan amount and term decided upon. Before approving an Upcoming small business loan, the company must have been in operation for a specified amount of time.

3. Working Capital Loan

A working capital loan can be used to help a small business get through any form of financial difficulty that arises during normal business operations. This kind of loan is particularly useful when a sudden need for cash flow is there to cover a season’s demands or a manufacturing expense. Loans for working capital are most suitable for import and export-related businesses including retailers, traders and manufacturers.

4.Loan Against Property

When companies need a loan amount greater than 50 Lakh, a loan against property is a smart option. This loan is provided with a property as security, as the name would imply. Ten to twenty years are available as the term for a loan secured by real estate. For the applicant to be qualified for money through a loan against property, the property must be mortgaged. Any type of property, including both commercial and residential ones, may be used to secure the loan. The lender provides a loan for up to 70% of the property’s value. Lenders must make sure that the subject property is free of all pending litigation before approving this sort of business loan.

5.Invoice Financing

Small business is frequently eligible for invoice financing, a type of business loan. This is particularly true if there is a delay between the business issuing invoices and receiving money. The loan money is given in exchange for the invoices. By the terms of this loan, the lender must pay off the debt after receiving the payment. It is also frequently referred to as invoice discounting or factoring.

6.Equipment Financing

For companies that manufacture any kind of item, equipment financing is an appropriate choice. High-priced equipment is required by manufacturing organisations to run their operations efficiently. There are frequent breakthroughs on the market, and in these cases, equipment financing might help cover the cost. The machinery is used as collateral for this loan type to protect the debt.

7.Women’s Business Loan

In response to the rising demand, financial institutions are increasingly providing women-specific business loans. The Government of India has designed some programmes to encourage women to start small and medium-sized companies to support this objective. Small Business loans for women are made available through the greatest offers, including flexible payback terms, a quick small business loan application process, cheap interest rates, and more.

8.Business Overdraft

You are eligible for a business overdraft if you have fixed deposits with a banking institution. The lender considers the cash flow of the business, past debt repayments, set deposit conditions, and other factors before extending this credit.

The borrower can obtain the necessary amount from the fixed deposit with the help of the overdraft and only pay interest on the amount used. Any use of the money that is connected to the company is permitted.

9.Business Credit Card

A business credit card is a fantastic finance option for meeting urgent needs. When a company needs money right away, this is a quick way to do so. Customers have numerous advantages when they use a business credit card, including cash back, points toward purchases, insurance coverage, and more. However, since this type of financing carries a substantially higher interest rate, using a corporate credit card should only be a last alternative.

10.Cash Advance for Merchants

The merchant cash advance consists of a capital advance made on daily debit and credit card transactions. To service the repayments, it is crucial to make sure the company has appropriate cash flow.

In small businesses, the need for money can come up at any time. Fortunately, you can now pick from a wide range of options designed to accommodate every style of business. It’s a good idea to know your needs and ability to repay the loan before you apply for a business loan. Depending on the nature of the company’s expenses and the amount of available funding, choose a suitable business finance solution from the list of small business loan options above.

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