What are the different types of business loans?

May 04, 2020

What are the different types of business loans?

Different companies and businesses frequently borrow capital to grow their profits. While this is a well-known fact, it’s also important to dive a little deeper. Businesses have a number of operations running at a time, and different types of business financing can help smoothen these affairs.

This can also depend on the type of business and the size of the company. For example, smaller or newer companies and startups may avail a loan as initial capital. On the other hand, industrial companies may require funds for the purchase of equipment or raw material.

There are other basic needs as well that require loans to be fulfilled sometimes, such as renting out office spaces, staff salaries, driving marketing campaigns, or funding business licenses. In all these situations, a business loan can be the answer.

Key features of a business loan

While there are many types of business loans, it should be understood what the key features are that set them apart from other types of loans. The first major difference is that a business loan helps fund business requirements alone. When running a business, it is crucial that business expenses are set apart from personal expenses. If this is not managed properly, it can become hard to draw a line between the two.

The second feature of a business loan is that no matter what type of commercial loan is availed, there are certain regulations in place that limit personal liability versus business liability. Business loans recognize companies as separate entities from the individuals who run them.

Types of business loans

Professional loans

This type of business loan is offered to a certain set of working professionals, namely doctors, architects, lawyers, and chartered accountants. A professional loan can help them start their own practice or expand it further. While this type of business financing is available to a limited group of people, professional loans have other conditions as well. Employed professionals must furnish proof of an educational qualification that permits them to practice in their particular line of work or vocation. This could be a degree or diploma. And for those who are looking to begin their independent practice, the individual must have a minimum of up to 5 years of experience in their field. These limitations and the strict eligibility requirements with regards to income can make it difficult to obtain a professional loan sometimes.

Overdraft

An overdraft business loan is one of the most common types of commercial loans. This is a form of a direct line of credit which is linked to an existing account. An overdraft facility is a useful loan type for MSMEs and can be especially helpful in the case of emergency situations. This is because it allows users to borrow above the balance in the account, and interest is only to be paid against the amount used.

Term loans

A term loan is available to businesses based on a fixed tenure, which can either be long or short-term. Different financial institutions offer these to fund a one-time capital requirement, such as the purchase of equipment, commercial vehicles, and land acquisition. Repayment can be anywhere between 5 and 30 years, which must be considered carefully as interest rates are fixed, and not floating.

Working capital loans

Most suitable for MSMEs, working capital loans are a type of business financing to help meet short-term requirements. It can help a business meet recurring expenses or fund daily operations. This type of business loan also helps companies that are in seasonal industries the most. Because they face the irregular flow of capital with fluctuating sales, funds may be required in an off-season to meet a bulk order or to prepare for the upcoming demand.

Equipment lease

Many different companies require equipment of all sorts. This is not limited to just factories and industrial units. Regular corporates and startup companies also require desktops, laptops, copiers, and more of the like. Purchasing several units at once can be extremely costly, and a business that is just starting out may not be able to afford such big-ticket expenses. An equipment lease can help businesses slowly acquire equipment required for their company with regular payments made over a fixed tenure.

Small business loan

This type of commercial loan is reserved for small and medium businesses specifically. Small business loans help cater to their needs, which is usually to help grow and expand the business. These loans are offered by various lenders and financial institutions, and there are also a handful of government funds set up to help nurture these businesses. The MUDRA Yojana scheme is one of the most popular funds set up for small-scale businesses.

Gold loans for businesses

Gold loans are a type of business loan that offer several advantages as opposed to other loan types. Gold loans do not require the same amount of extensive paperwork to be submitted that all other business loans require. The only documents required for gold loans are copies of KYC papers.

Gold loans also offer high loan amounts that are guaranteed. Whereas with business loans, funds may be more limited based on factors like yearly profits, age of the company, and more. This is because gold is a highly valued asset, and gold loan companies offer high per gram rates against the collateral. An estimate or approximate value can be demonstrated with a gold loan calculator for business loans.

With Rupeek, business loans are available to all companies, small, medium, or large. There are no eligibility requirements like a CIBIL score or minimum profit margin either. Rupeek’s gold loan solutions are also the most affordable for businesses as interest rates that are offered are the lowest in the market, starting at just 0.89%. Convenience and comfort are also ensured with unique doorstep services to ease the busy schedules of working professionals. All services are available online on the website and app as well, simplifying the gold loan application and procedure to a simple tap of a button as well. Get in touch with a branch nearby to fund your business requirements today.