Business loans in India: 5 types you must know
What's the story
Navigating the Indian financial landscape can be difficult for entrepreneurs. With a plethora of business loan options available, it becomes imperative to know which are the most sought-after ones. Each type of loan comes with its own set of benefits and challenges, catering to different business needs and stages. Here are five popular business loans in India that entrepreneurs frequently consider.
#1
Term loans for long-term needs
Term loans are one of the most commonly used financing options for businesses in India. These loans are usually offered for a period ranging from one to five years, and are paid back in equated monthly installments (EMIs). They are ideal for funding long-term projects, buying equipment, or expanding operations. Banks and financial institutions provide term loans with varying interest rates, depending on the borrower's creditworthiness.
#2
Working capital loans for daily operations
Working capital loans are meant to cover day-to-day operational costs such as salaries, rent, and inventory purchases. These loans provide short-term financing (usually less than a year) and help businesses maintain liquidity without disrupting cash flow. They can be secured or unsecured, depending on the lender's policies and the borrower's credit profile.
#3
Equipment financing for asset acquisition
Equipment financing is a specialized loan meant for the purchase of machinery or equipment required by a business. The equipment itself serves as collateral for the loan, which reduces risk for lenders and often leads to lower interest rates than unsecured loans. This type of financing is especially useful for manufacturing units or service providers needing expensive tools.
#4
Invoice financing for cash flow management
Invoice financing allows businesses to get immediate cash by using their unpaid invoices as collateral. This is an excellent solution for companies with delayed payment cycles from clients but urgent cash flow needs. By selling invoices at a discount to a lender, businesses can access funds quickly without waiting for clients to pay.
#5
Business credit cards for flexible spending
Business credit cards provide a flexible spending option with revolving credit limits that can be used multiple times until the limit is reached. They come with perks like reward points and cashback offers, while allowing you to manage expenses efficiently through detailed statements every month. However, it's important to pay off balances promptly to avoid high-interest charges associated with these cards.