Business loans are the most common forms of credit availed by organisations to boost their working capital, and maintain a healthy flow of finance for different operations. These credits come with affordable rate of interest, online business loan application process, flexible repayment tenor, and several other borrower-friendly features and benefits that make them ideal for utilizing in an organisation.
There are various types of business loans you can avail to raise finance for your business, depending upon the requirement and size of the loan.
You can broadly classify business loans under the following categories –
Unsecured business loans
These loans are disbursed without any collateral. These are short term business loans that come with easy to meet eligibility criteria and affordable business loan interest rates. Unsecured business loans also take significantly less time to approve and disburse.
This type of loan is best suited to fulfil your short term needs, such as boosting your working capital or inventory.
To avail an unsecured business loan, you need to have a high CIBIL score with a steady flow of income.
There are several different financial organisations that offer these types of credit.
Secured business loans
Secured loans are offered against collateral. These loans are generally of a larger sum, with a relatively lower business loan interest rate. In case of defaults, the collateral becomes the bank’s property, which they can sell to reimburse the full amount of the debt. In the case of capital investment and expansion of business, you can avail this loan at reasonable business loan interest rates.
Secured loans are generally of a longer tenor, due to a larger size of the loan amount.
Self-secured business loans
Self-secured business loans are those which are given against the collateral purchased with the loan itself. For example, if you are buying a plot of land or property to open a new office for your business, that establishment will serve as collateral against which the loan is given.
Advantage of availing a business loan
- Adequate working capital
Every business requires a minimum amount of money to ensure they can meet its day to day expenditures and maintain short term inventory. However, most organisations do not enjoy a steady stream of revenue throughout the year to fund its operations. To fulfil this void, it borrows money from various financial institutions with the guarantee of repaying when it generates revenue. Online business loans can easily help finance the multiple types of working capital a company needs.
- Improving infrastructure
Expansion of a business involves maintaining and growing the infrastructure of a company. Buying and maintaining equipment and machinery is necessary to sustain and increase a firm’s production capacity. However, a company might find it difficult to procure such equipment from its savings. In such cases, a business loan can provide monetary backing to purchase and install such equipment.
- To increase inventory
Maintaining adequate stock of inventory is vital for any business. Inventory stock ensures that a company would not suffer from a lack of raw materials to continue production. For example, a sudden increase in the demand for a product allows a company to increase its sales and generate adequate revenue by using inventory supply. Thus, the company borrows money to purchase raw materials and refill its inventory stock.
These are the various types of business loans you can avail for your business. Proper funding of businesses allows them to grow and expand their operations, thereby contributing to the total output and the GDP of the country.