What Are the Different Types of Business Loans in India You Can Go for?
Nishant Vivek 01 March 2019
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There are more than 42.50 million businesses in India, contributing to 95% of the total industrial output of this country. It employs 106 million people and produces more than 6,000 types of products. The sector has maintained an average growth rate of over 10% every year.
 
Such massive growth is largely due to the availability of funds in the form of business loans. Several financial institutions in India offer such advances with various customer-centric features and benefits. These advances can help to overcome the challenges small business owners face, finance their purchases and integrate the necessary equipment to improve their production line. 
 
Lenders offer business loan catering to the unique requirements of companies. These products differ in the loan amounts disbursed, tenors, interest rates, repayment schedules and various other aspects. 
 
Primarily, a business loan is available in 4 major variants: 
 
Working capital loans 
 
Working capital is essential to fund a business’ everyday expenses. A business loan for working capital helps a company to pay for raw materials, overhead costs like electricity, rent, water, and other utilities, make payments to suppliers and maintain a healthy financial base. 
 
Working capital loans are essential for businesses that do not enjoy stable revenue throughout the year. SMEs require working capital loans to sustain their everyday operations. Manufacturing businesses should, however, follow certain tips to manage working capital efficiently to keep their production going. 
 
  • Machinery loans
 
Businesses require a substantial amount of funds to purchase or upgrade their plant’s equipment. Most of these tools are imported from foreign countries which increase their price significantly. Now, small and medium scale enterprises often face financial shortage to pay for such new equipment or to train their employees in utilising these tools to boost their production capacity.
 
In such cases, most of them avail machinery or equipment loans to procure and integrate the latest tools effectively. Financial institutions offer high loan amounts of up to Rs. 30 Lakh to aid companies in covering this financial necessity.
 
NBFCs provide with unsecured loans to purchase equipment. A borrower need not pledge any collateral, which allows him to repay the advance without any risk of asset confiscation on default.
 
  • SME and MSME loans
 
SMEs and MSMEs form the backbones of the Indian service sector. They contribute to almost 6.11% of the total manufacturing GDP and 24.63% of service sector GDP. However, despite their input in the manufacturing sector, SMEs and MSMEs suffer from a consistent lack of financing. 
 
To tackle this financial difficulty, MSMEs and SMEs avail additional funds to meet their monetary requirements. Lending companies provide different types of business loans with benefits like affordable rates of interest, Flexi Loan facility, and instant approval within 24 hours. A borrower can also access his loan account online to view important details such as loan statement, repayment date, due amount, etc. Moreover, lenders offer flexible tenors ranging from 12 to 60 months to make repayments easier. 
 
Additionally brings pre-approved offers to make the loan availing procedure simpler and reduce the time consumed considerably. Customers can opt for pre-approved offers on business loans, you only have to share some essential details to check your pre-approved offer.
 
Furthermore, the eligibility criteria to qualify for such a loan are simple and easy to meet. Lenders also ask for only the basic documents when a borrower applies for credit. Here are the eligibility terms and documents necessary to apply for credit. 
 
Eligibility criteria and documents needed
 
Financial institutions set simple eligibility criteria and minimum documentation to apply for a business loan. While requirements may vary between lenders, some of the common ones include:
 
  • Age of the applicant – An applicant should be 25 to 55 years of age. 
  • Business tenor – Business vintage of minimum 3 years is mandatory. 
  • Tax filing – Applicants have to present income tax returns for at least the past year. 
 
Business loans in India come with a variety of tailor-made features to meet the unique financial requirements of different business owners. These can offer an enterprise the much-needed support for profitability and growth. 
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