Regardless of your company's size or the nature of its operations, the need for additional capital can arise at any time. Additional funding can be for anything, such as investing in a startup, purchasing a new office, or stocking inventories. And, to assist you in this regard, business loans are readily available in the market. However, every business is unique, as are its requirements. Given this, financial institutions provide customised funding options tailored to specific needs. Let's learn about these products one by one.
Term loans are a popular type of business financing. They are unsecured and are preferred by entrepreneurs when they require funds quickly to meet short-term expenses. Because of the loan's flexibility, you can use funds for several purposes, such as paying staff salaries, stocking raw materials, and purchasing equipment. The term loan is disbursed after reviewing your company's credibility, annual profit, cash flow status, and experience as an owner in running that specific company.
Your company may experience liquidity issues in meeting its daily operational expenses. Such problems are more likely if your business is highly seasonal or your sales are cyclical. A working capital loan is a type of secured business financing product designed to address such challenges. You can secure funding through this product by pledging your company's underlying inventories.
Most businesses use this product to cover costs, such as rent, raw materials, payroll, and short-term debt repayment.
Also Read: Why Working Capital Loan is the Best Funding Option?
A letter of credit, or LC, is an official document issued by a financial institution on your behalf. The document states that the payment to the seller is guaranteed and that there is no default risk. In case you fail to make the payment, the financial institution will be held liable.
LC is a secured form of financing. It is generally offered by banking institutions by pledging cash in the account or securities. Additionally, you must pay a fee based on the coverage amount specified in the letter. The parties involved in this transaction are the financial institution, you, and the seller.
Sight Credit LC offers on-the-spot funding in exchange for the required documents. For example, you can obtain funds by submitting a bill of exchange with sight LC to your lender.
Under this, the bills are accepted once they are presented, and payment is made on the due date specified on it.
If you have revocable credit, the issuer can terminate the terms and conditions on legitimate grounds. Irrevocable credit is the absolute opposite of it.
If you receive LC from a client abroad, you may approach your lender and request that a new LC is issued in the name of your domestic supplier based on the export LC. If your lender agrees and provides this document, the LC will be referred to as back-to-back credit.
Invoice discounting is a financing method in which you sell your account receivables (invoices) to lending institutions and receive funds in exchange. The funds can then be used to meet short-term working capital needs, such as purchasing raw materials and paying suppliers.
Bill discounting is usually of three types:
Overdraft, or OD, is a credit facility that allows you to withdraw funds from your current account even if it has no balance. OD is typically provided by banks and is granted for a limited time. This credit facility has a predetermined limit that is decided based on your credit history, transaction history, and revenue. OD is a secured form of business financing and is provided against property, insurance, salary, equity, and investment.
Medical science is advancing at a rapid pace. The approach to medical assessment and treatment has changed dramatically. If you own a hospital or a small clinic, you must ensure that your equipment is upgraded regularly. However, given the costs, purchasing it with your own money is not advised, and you should seek medical equipment financing.
Established financial institutions often hesitate to lend to start-up profiles. The reason is a lack of business experience and credibility. Due to this scenario, businesses either close or raise funds through equity or angel investors in exchange for a majority stake in their company. In order to address this situation and make funds available to new and established businesses, the government began offering various financing schemes.
Some noted government business loan schemes are–
In the digital age, transactions through credit and debit cards are very common. Given this, various shops and stores have started installing point of sale (POS) machines to allow customers make payment through card swiping. Merchant cash advance is a business loan product in which you can receive cash advance based on the card transactions.
The repayment model is determined by reviewing your daily collection via the swipe machine installed in the store. The fixed portion, also known as the holdback percentage, of your daily collection is automatically credited to your lender's account.
Features of a merchant cash advance:
In order to carry out your business activities smoothly, you need to be aware of the different types of business financing and understand the different options of financing available for you. This will help you go for the loan that best suits your needs. We suggest here that before you proceed with your application, assess your requirements, evaluate the available loan products, and review the eligibility and documentation.