Any business needs sufficient money to grow and survive which is one of the most important factors required for production of goods and services. Business loans are therefore like a helping hand for all kinds of businesses, from small ones to big ones. From small Startups to established conglomerates, businesses across India seek various forms of capital to achieve their ambitions. This article will act as a simple guide to those who want to know about the types of business loan available in India.
I) Loan from Banks
Term Loans:
Traditional Business Term loans in India offer a fixed lump sum amount with a predetermined interest rate, making them ideal for long-term capital investments such as purchase of machinery, land, building or expansion of an existing business. These are long term business loans with fixed interest rates available to fresh and existing businesses.
Working Capital Loans:
These type of loans are generally given for managing the working capital needs of the business. Working capital loans provide businesses with funds for day-to-day operations and helps to manage their cash flow, inventory, and operational expenses. These are short term in nature often in the form of Overdraft facilities or Demand loans against the hypothecation of current assets of the business enterprise.
Lines of Credit:
Banks offer lines of credit for business in India in the form of flexible revolving credit limit that can be utilized as and when needed by an enterprise. These loans are suitable for managing cash flow fluctuations encountered by any business enterprise due to unavoidable circumstances.
II) Government-Backed Loans
Mudra Loans: Government of India has introduced Mudra loans, under the Pradhan Mantri Mudra Yojana (PMMY), that is primarily targeted at Micro, Small, and Medium-Enterprises (MSME).These loans are Micro loans providing the small and micro businesses with financial assistance for starting a business, purchase of raw material etc; which acts as an incentive for small scale entrepreneurs to start any suitable venture which otherwise would not have been possible for them. These are usually unsecured loans with a nominal rate of interest with flexible repayment options.
Stand-Up India Loans:
Government of India has also introduced the Stand-Up India loans which are purely designed to promote entrepreneurship among women, SC/ST, and backward class entrepreneurs by offering financial assistance to them to pursue their dreams.
III) Loan from Non-Banking Financial Companies (NBFCs)
NBFC Business Loans:
Like Banks there are Non-Banking Financial Companies in India that offer a variety of business loans, that includes secured and unsecured loans that offers more flexible eligibility criteria to eligible businesses. Although NBFCs are controlled by RBI like banks, they offer great variety of business loans that are often customized according to the borrower’s needs.
IV) Startup and Innovation Loans Startup India Loans:
Another initiative by the Government of India is the ‘Startup India’ loans that offers financial support to budding startups in India. India is the third country to have Startup Unicorns in the world. These loans includes collateral-free loans, grants, and incentives which are based on the concept of innovation, social utility and profitability of the startup business. These loans often come with a moratorium scheme for some startup businesses to encourage and support them in their endeavor during tough times.
Technology and Innovation Loans: These type of loans are tailored to suit technology based startups like Fintech, Agrotech businesses in the fast growing innovation sector, providing capital for research, development, operations and growth.
V) Sector-Specific Loans MSME Loans:
Like Mudra loans of Government of India, MSME loans cater to the unique needs of Micro, Small, and Medium-sized Enterprises, supporting their growth and development. The eligibility for this loan is that the business is required to be classified under MSME sector based on the nature, turnover and other criteria of the business. Many MSMEs have been benefited by these loans for their working capital needs which act as the major hindrance in their business.
Agriculture Loans:
Agriculture loans or Farm Finance are designed to meet the financial requirements of farmers and agri-businesses, covering expenses like crop cultivation, fertilisers and equipment purchases.
VI) Collateral and Collateral-Free Loans
Secured Business Loans:
Most of the business loans offered in India are Secured business loans. These type of loans require some collateral security often in the form of property or other assets, that comes with lower interest rates and higher loan disbursements. Loan Against Property (LAP) is a popular and more happening product amongst lenders in India. The lenders ask for a valuation report of the collateral like building, machinery, land or some other immovable assets to be submitted to them. Mostly around 50% to 60% of the value of the property is offered as Secured Business Loan. Also, there are other conditions like Minimum Turnover/Income, period of operation of the business, Minimum Credit score(CIBIL) and Banking strength to be satisfied for sanctioning a Secured Business Loan.
Unsecured Business Loans: Banks and NBFCs also lend Unsecured business loans that do not require collateral and are purely based on the creditworthiness of the business offering them quick access to funds. These loans are of great help to new entrepreneurs who don’t have a collateral security to apply for a loan. The eligibility conditions are mostly based on the scope of the business, future projections of income, profit and turnover, background and experience of the borrower and credit score. These loans are usually offered for a small tenure with a higher rate of interest.
In India’s dynamic business landscape, securing the right business loan can be a game-changer. With a diverse range of financing options, from traditional bank loans to government-backed schemes and innovative startup support, there’s a loan tailored to every business’s unique needs. The borrowers should remember to consider their specific requirements, repayment capabilities, and eligibility criteria while choosing the most suitable financing solution for their venture. Whether for starting a new business, expanding an existing one, or facing challenging times, the right business loan can be the path to financial empowerment and growth in the Indian business ecosystem
I) Loan from Banks
Term Loans:
Traditional Business Term loans in India offer a fixed lump sum amount with a predetermined interest rate, making them ideal for long-term capital investments such as purchase of machinery, land, building or expansion of an existing business. These are long term business loans with fixed interest rates available to fresh and existing businesses.
Working Capital Loans:
These type of loans are generally given for managing the working capital needs of the business. Working capital loans provide businesses with funds for day-to-day operations and helps to manage their cash flow, inventory, and operational expenses. These are short term in nature often in the form of Overdraft facilities or Demand loans against the hypothecation of current assets of the business enterprise.
Lines of Credit:
Banks offer lines of credit for business in India in the form of flexible revolving credit limit that can be utilized as and when needed by an enterprise. These loans are suitable for managing cash flow fluctuations encountered by any business enterprise due to unavoidable circumstances.
II) Government-Backed Loans
Mudra Loans: Government of India has introduced Mudra loans, under the Pradhan Mantri Mudra Yojana (PMMY), that is primarily targeted at Micro, Small, and Medium-Enterprises (MSME).These loans are Micro loans providing the small and micro businesses with financial assistance for starting a business, purchase of raw material etc; which acts as an incentive for small scale entrepreneurs to start any suitable venture which otherwise would not have been possible for them. These are usually unsecured loans with a nominal rate of interest with flexible repayment options.
Stand-Up India Loans:
Government of India has also introduced the Stand-Up India loans which are purely designed to promote entrepreneurship among women, SC/ST, and backward class entrepreneurs by offering financial assistance to them to pursue their dreams.
III) Loan from Non-Banking Financial Companies (NBFCs)
NBFC Business Loans:
Like Banks there are Non-Banking Financial Companies in India that offer a variety of business loans, that includes secured and unsecured loans that offers more flexible eligibility criteria to eligible businesses. Although NBFCs are controlled by RBI like banks, they offer great variety of business loans that are often customized according to the borrower’s needs.
IV) Startup and Innovation Loans Startup India Loans:
Another initiative by the Government of India is the ‘Startup India’ loans that offers financial support to budding startups in India. India is the third country to have Startup Unicorns in the world. These loans includes collateral-free loans, grants, and incentives which are based on the concept of innovation, social utility and profitability of the startup business. These loans often come with a moratorium scheme for some startup businesses to encourage and support them in their endeavor during tough times.
Technology and Innovation Loans: These type of loans are tailored to suit technology based startups like Fintech, Agrotech businesses in the fast growing innovation sector, providing capital for research, development, operations and growth.
V) Sector-Specific Loans MSME Loans:
Like Mudra loans of Government of India, MSME loans cater to the unique needs of Micro, Small, and Medium-sized Enterprises, supporting their growth and development. The eligibility for this loan is that the business is required to be classified under MSME sector based on the nature, turnover and other criteria of the business. Many MSMEs have been benefited by these loans for their working capital needs which act as the major hindrance in their business.
Agriculture Loans:
Agriculture loans or Farm Finance are designed to meet the financial requirements of farmers and agri-businesses, covering expenses like crop cultivation, fertilisers and equipment purchases.
VI) Collateral and Collateral-Free Loans
Secured Business Loans:
Most of the business loans offered in India are Secured business loans. These type of loans require some collateral security often in the form of property or other assets, that comes with lower interest rates and higher loan disbursements. Loan Against Property (LAP) is a popular and more happening product amongst lenders in India. The lenders ask for a valuation report of the collateral like building, machinery, land or some other immovable assets to be submitted to them. Mostly around 50% to 60% of the value of the property is offered as Secured Business Loan. Also, there are other conditions like Minimum Turnover/Income, period of operation of the business, Minimum Credit score(CIBIL) and Banking strength to be satisfied for sanctioning a Secured Business Loan.
Unsecured Business Loans: Banks and NBFCs also lend Unsecured business loans that do not require collateral and are purely based on the creditworthiness of the business offering them quick access to funds. These loans are of great help to new entrepreneurs who don’t have a collateral security to apply for a loan. The eligibility conditions are mostly based on the scope of the business, future projections of income, profit and turnover, background and experience of the borrower and credit score. These loans are usually offered for a small tenure with a higher rate of interest.
In India’s dynamic business landscape, securing the right business loan can be a game-changer. With a diverse range of financing options, from traditional bank loans to government-backed schemes and innovative startup support, there’s a loan tailored to every business’s unique needs. The borrowers should remember to consider their specific requirements, repayment capabilities, and eligibility criteria while choosing the most suitable financing solution for their venture. Whether for starting a new business, expanding an existing one, or facing challenging times, the right business loan can be the path to financial empowerment and growth in the Indian business ecosystem