Different Types of Business Loans in India

In India, small business owners have a special privilege when it comes to the available sources of finance. There are different types of financing alternatives available to cater to different requirements of a business. So, what exactly are these various forms of business loans? How can you secure an affordable business loan interest rate? Check this article to get the answer.

1. Term Loan:

Term loans are the most common form of business loans. These are unsecured loans that are usually available for the short term. The majority of financial organisations provide this loan for a maximum of 36 months. This loan is typically used to fund office supplies, pay employee salaries, and other similar expenses.

Some of the most common features of this loan are outlined below.

• Term loans are unsecured loans.
• You can take out this loan for the amount ranging from Rs 5 lakhs to Rs 25 lakhs.
• The term business loan interest rate is determined by evaluating your personal and business credit profile.
• The lender does not impose any limitations on the use of the funds. It implies that you can utilise it for any business purpose.

2. Working Capital Loan: 

As the name implies, working capital is specially designed to cater to business operational expenses. You can utilise the funds to pay for raw material purchases, stock replenishment, and cash flow management, among other things. Working capital loans are accessible for a maximum of 36 months, just like term loans. The loan is offered after determining the realisable worth of your company’s underlying assets.

Some of the most common features of this loan are outlined below.

• The loan is available to individual medical practitioners, trusts, societies, private and public limited companies.
• The working capital loan is available with a loan-to-value (LTV) ranging from 75% to 80%.
• You can get the maximum loan amount of Rs 5 crores.
• You will need a total of five years of business experience as well as three years in your current business.
• The working capital business loan interest rate ranges from 11% to 14%.

3. Medical Equipment Loans

Medical equipped loans have taken the healthcare sector by storm. The loan has allowed individual medical practitioners and hospital owners to switch to advanced medical equipment without using their business revenue. The loan is offered to businesses that operate diagnostic centres, nursing homes, IVF clinics, medical institutes, super speciality hospitals, and other similar businesses. You can use this business loan to finance the following medical technologies.

• CT scan and MRI machinery
• X-ray machines
• Dental chairs
• Colour Doppler
• Cath-labs

Some of the most common features of this loan are listed below.

• The loan is available for a maximum tenure of seven years.
• The equipment business loan interest rate starts from just 11%.
• You can get the loan for the amount starting from Rs 10 lakhs.
• You need to furnish the banking details of the last 12 months to obtain this loan.
• You will need a total of five years of business experience as well as three years in your current business.

4. Line of Credit

A line of credit is a revolving loan that you can access on-demand. Under this kind of business loan, the lender provides you with a pre-approved credit limit. You can withdraw the required amount from the sanctioned limit. This loan does not need you to exhaust or withdraw the entire amount at once.

The business loan interest rate charged on the line of credit is only on the amount withdrawn and not on the sanctioned amount.

Now that you have now learned about the many types of business loans; let’s look at how to secure a loan with a low-interest rate.

Tips to Get an Affordable Business Loan Interest Rate

• Maintain Good Creditworthiness:

As a business owner, you should never default on any sort of loan. Make sure that you are repaying all your EMIs on time. A good business credit history ensures that you get an affordable interest rate.

• Submit all the Documents:

While submitting your application, make sure you furnish all the essential documents. Get your financials audited and file your income tax and GST returns on time to get the low interest. Also, make sure you have a copy of your business registration certificate and other necessary paperwork.

• Maintain Healthy Relationship with the Lender:

Your relationship with the lender is crucial. If you are a trustworthy borrower who has never missed a payment, the lender is more likely to approve you for a low-interest business loan.

Some other ways to secure an affordable loan include maintaining positive cash flows, a lower debt-to-revenue ratio, and staying in your current business for a long time.

To Conclude: 

Business loans come in a customised form. Different sorts of loans carry different interest rates. As a result, it’s critical that you first figure out which loan is best for you. Once you have made your decision, follow the steps outlined above to obtain a low-interest business loan.