Types of Business Loans Available in India

Starting and scaling a business requires capital. Whether you’re a seasoned entrepreneur or a new startup owner, securing the right business loan is crucial to fuel your business’s growth. In India, there are several types of business loans available, each designed to cater to different needs and business models. In this vlog, we’ll explore the most common types of business loans available in India and how you can choose the one that best fits your requirements. Along with that, we’ll also discuss the business loan eligibility criteria and give you insights into the business loan calculation process.

1. Term Loans

Term loans are the most straightforward and traditional form of business loans in India. These loans are usually provided for a specific period, which can range from a few months to several years. They are typically used for purchasing equipment, expanding business infrastructure, or funding long-term projects.

• Features:
  
  • Fixed or floating interest rates.
    
  • Repayment is made in EMIs over the loan tenure.
    
  • Can be either secured or unsecured.
    
• Business Loan Eligibility:
  To qualify for a term loan, businesses usually need to have a good credit score, stable cash flow, and a solid business plan. Lenders may also look at your business’s operating history and profitability.
  
• Calculation:
  To calculate the monthly EMI for a term loan, you can use an EMI calculator or apply the formula for calculating EMI. This will help you figure out your repayment structure and budget accordingly.
  
• Where to Get It:
  You can apply for term loans from various business loan providers in Kolkata or national banks.
  

2. Working Capital Loans

A working capital loan is ideal for businesses that need short-term funds to manage their daily operational costs like payroll, inventory purchases, and paying suppliers. It helps bridge the gap between income and expenses, ensuring that businesses can continue to run smoothly without interruptions.

• Features:
  
  • Shorter repayment term, often between 12 to 36 months.
    
  • Can be secured or unsecured.
    
  • Helps businesses maintain smooth cash flow.
    
• Business Loan Eligibility:
  The eligibility for working capital loans depends on the business’s financial stability and credit score. Lenders may also ask for a few years of tax returns to evaluate your business’s cash flow.
  
• Calculation:
  When applying for a working capital loan, lenders will typically calculate the loan amount based on your business’s annual turnover and working capital requirements.
  

3. Invoice Financing

For businesses that have a large number of outstanding invoices, invoice financing can be a game-changer. This type of loan allows businesses to borrow money against their unpaid invoices. It is an excellent option for businesses that have a significant number of accounts receivable and need funds before their clients pay.

• Features:
  
  • Short-term loan against unpaid invoices.
    
  • Can be ideal for businesses with slow-paying customers.
    
  • No need for collateral or a long approval process.
    
• Business Loan Eligibility:
  To be eligible, businesses must have invoices from reliable clients and a solid history of receivables. Your business’s creditworthiness also plays a role in approval.
  
• Where to Get It:
  Invoice financing is available through various business loan companies in Kolkata and fintech platforms that specialize in invoice factoring.
  

4. Equipment Loans

If your business requires expensive equipment, an equipment loan can provide the necessary funds to purchase machinery, vehicles, or technology tools. This type of loan is secured against the purchased equipment itself, which reduces the lender’s risk.

• Features:
  
  • Can cover up to 80-90% of the equipment’s value.
    
  • Fixed interest rates with EMIs.
    
  • Used solely for purchasing business equipment.
    
• Business Loan Eligibility:
  Lenders evaluate the equipment’s value, the business’s financial health, and the credit score of the applicant.
  
• Calculation:
  The loan amount is typically based on the value of the equipment. However, the EMI calculation will depend on factors such as loan tenure, interest rate, and the down payment made.
  

5. SME Loans

Small and Medium Enterprises (SMEs) are the backbone of India’s economy. SME loans are specifically designed to help businesses in this sector expand, upgrade, or enhance their operations. These loans come with competitive interest rates, and the eligibility is often flexible.

• Features:
  
  • Tailored for small and medium-sized businesses.
    
  • Unsecured loans, though collateral may sometimes be required.
    
  • No requirement for asset purchase; funds can be used for a variety of business needs.
    
• Business Loan Eligibility:
  Eligibility is based on factors like annual turnover, years in operation, and business stability. A good credit score is also crucial for approval.
  

6. Overdraft Facility

An overdraft facility is a credit line extended by the bank that allows businesses to withdraw more than their bank balance, up to a certain limit. This is useful for businesses that need access to quick funds in case of a cash flow crunch.

• Features:
  
  • Flexible withdrawal and repayment.
    
  • Interest is charged only on the amount withdrawn.
    
  • Secured overdraft options may require collateral.
    
• Business Loan Eligibility:
  The eligibility depends on your business’s financial track record and your ability to repay within the credit limit.
  

7. Trade Finance Loans

For businesses involved in import and export, trade finance loans offer an avenue for securing funding for international trade. This type of loan is used to finance trade deals, including payment to suppliers and securing letters of credit.

• Features:
  
  • Ideal for businesses engaged in cross-border trade.
    
  • Helps with purchasing goods from suppliers and fulfilling orders.
    
  • Offers flexibility in terms of payment.
    
• Business Loan Eligibility:
  Lenders assess the strength of the business’s trading relationships, its creditworthiness, and the volume of transactions to approve the loan.
  

8. Loan Against Property (LAP)

If you own property, you can opt for a loan against property (LAP). This is a secured loan where the business owner pledges property as collateral. The loan can be used for various business purposes like expansion or working capital requirements.

• Features:
  
  • Lower interest rates due to the secured nature of the loan.
    
  • Longer repayment tenure.
    
  • The loan amount depends on the value of the property.
    
• Business Loan Eligibility:
  The eligibility for LAP depends on the value of the property, the applicant’s credit history, and the repayment capacity.
  

9. Business Loan for Women Entrepreneurs

Specialized business loans are available for women entrepreneurs in India. These loans typically offer lower interest rates and easier eligibility criteria to encourage women in business.

• Features:
  
  • Tailored for women entrepreneurs.
    
  • Competitive interest rates and flexible repayment options.
    
• Business Loan Eligibility:
  The eligibility criteria are similar to other business loans, but some lenders may offer more lenient conditions for women.
  

Conclusion:

Choosing the right business loan in Kolkata or any other part of India can have a significant impact on your business’s future. Whether you’re looking for a term loan, working capital loan, or even a loan against property, it’s essential to assess your needs, eligibility, and repayment capacity. Understanding business loan eligibility and business loan calculation will help you make informed decisions and ensure that you get the best deal for your business.

Always choose a reliable business loan provider in Kolkata that offers transparent terms and a smooth application process. Whether you’re running a small business or looking to scale your startup, the right business loan can help you achieve your financial goals and drive success.

If you’re ready to explore your business loan options, consider approaching a business loan company in Kolkata that offers competitive rates and terms tailored to your business needs.