Introduction
A few months back, Ms. Mala Tomar, a homemaker in Jaipur decided to become an entrepreneur. She invested all her savings in starting her own bakery and confectionery store. While she started out with a great level of enthusiasm and got rave reviews from her patrons, few things took her by surprise. As someone who was not well acquainted with different aspects of running a business, she soon realised that businesses, especially newer and smaller ones, struggle due to a dearth of cash. Sometimes, the payments from customers get delayed and on other occasions, one needs to have enough cash reserve to book bulk orders or purchase inventory or hire staff. While business owners are aware that financial institutions offer business loans for the sustenance and growth of their firms, not many are familiar with the different types of loans available that can help them when dealing with a cash crunch. Therefore, if you are a business owner, you can opt for the following types of business loans:
Different Types of Business Loans
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Invoice or Bill Discounting Finance:
In this type of loan, you can borrow funds from a lender in advance and in lieu of payments due from customers. These loans save businesses from slowing down when customers take time to clear the payments. You can avail up to 85% of the value of the payment due and will have to pay the loan-processing fee and the interest amount. The lender, while sanctioning this loan, focuses more on the financial credentials of the applicant’s customers and therefore, even business owner with not a very good credit score can avail it.
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Working Capital Loan:
These loans finance the day-to-day operations of a firm like rent for the office space, purchasing inventory, paying electricity and water bills, repairing and maintenance works, payment to suppliers and salary to staff among other things. You get an idea of your working capital if you subtract the current liabilities i.e. the payments owed to others from current assets i.e. cash on hand and accounts receivables. This type of loan helps the businesses that are seasonal in nature to get through temporary phases of a cash crunch. These short-term loans are not for investment purposes or heavy purchases.
These are standard loans with a fixed term and long repayment period of 15-20 years. The loan amount and the interest rate depend on the credit profile of the applicant. These loans can be availed with either fixed or floating interest type and with or without collateral.
It is similar to credit cards but meant for businesses. The lender sanctions the maximum amount you can withdraw from your loan account. It is also flexible as you can withdraw only a certain amount of money that you need at the instance and pay only the interest on the amount withdrawn.
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Project & Acquisition Finance:
As the same clearly suggests, such loans facilitate expansion and merger plans. Lenders assess the projected cash flows of the business along with the present balance sheets of the project.
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Secured Term Loan:
These loans require you to pledge an asset as collateral. They are called secured loans as it provides certain security to the lender, who reserves the right to sell the asset to recover his money in case of a default. Because they are less risky in nature, lenders offer higher borrowing limits, lower interest rates and the extended repayment period. These loans are commonly used for purchasing land or office space or for construction and renovation purposes.
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Medical Equipment Finance:
If you are a medical practitioner and wish to start your own clinic or diagnostic centre, these loans are designed to help you buy the standard medical equipment like MRI Machines, X-Ray Machines, CT Scanners, Sonography Machines, and other medical equipment.
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Machinery Loan:
If your business is depending on machines that give maximum production with minimum utility requirements like power consumption, work force engagement, installation cost, etc. these loans will assist you in buying these machines. When one buys a machine or equipment with a loan, the machine itself becomes the collateral.
Conclusion
Business loans can play a vital role at any stage of the business and thus, it becomes important for owners like Mala to be aware of the various types of loans. Most of the loans mentioned are distinct in the purpose they serve but have common features. If you are an Indian resident above 18 years of age with a steady source of income and meet other eligibility criteria, the whole process from application to disbursal will get completed within 48 hours and that too in a hassle-free manner. We, at Hero FinCorp, understand the requirement and compulsions of the applicants and thus offer loans at better terms and conditions curated to meet the explicit needs of the business owner.
