Loans are a crucial tool for businesses to maintain and expand their operations, but it may be difficult to choose the right one given the wide range of options and possibilities available on the market. To assist businesses in making educated decisions regarding their financing options, this section will present a succinct review of each of the loan types available for businesses in India, highlighting its features, advantages, and eligibility requirements.
One of the most common forms of loans provided to businesses in India are term loans. Banks and other financial institutions offer these loans to assist firms in addressing their long-term financial needs, such as capital purchases, working capital requirements, and expansion plans. Compared to other loan kinds, the loan amount is often bigger, making it appropriate for big companies that need more money.
The fact that term loans have lower interest rates than other loan kinds is one of its benefits. This is due to the fact that they are secured loans, meaning that firms must put up collateral as security for the loan repayment. Lenders are able to provide cheaper interest rates since this lowers their risk. The interest paid on these loans may also be eligible for tax deductions for companies in the B2B sector.
Businesses need to be in excellent financial standing and have a high credit score to qualify for term loans. Financial statements, bank statements, and other supporting data are frequently requested from small and medium sized businesses by lenders in order to support loan applications.
Working Capital Loan
In India, company loans for working capital are a common source of funding. These loans are intended to assist businesses in managing their ongoing cash flow and operating costs. Working capital loans are often small, short-term loans that are taken out to pay for inventories, raw material purchases, or other operating costs.
Working capital loans' flexibility is one of its best qualities. This type of loans, as opposed to other types of finance, can be customised to the borrower's unique requirements. For instance, a company might need to take out a loan to buy merchandise to satisfy seasonal demand. In this situation, the loan may be set up to give cash during the busiest part of the year and then be repaid after that, adjusting to the given circumstances.
Working capital loans are usually easier to get than other forms of loans and are authorized swiftly. Moreover, working capital loans do not need collateral, therefore firms are not required to put up assets such as property or equipment as per the security measures.
Loan Against Property
Loans Against Property (LAP) are a common way for enterprises in India to borrow finance. These loans are secured by the borrower's property, which might be residential or commercial. This loan is provided to firms who want cash for expansion, working capital, or debt consolidation. In order for a business to qualify for an LAP, the borrower must be an Indian resident and own the property that will be used as collateral.
LAP loan amounts generally range between 50% and 70% of the property's value. LAP interest rates are frequently lower than unsecured loan interest rates, and the payback period is generally from 5 to 15 years.
One of the most notable advantages of LAP is that it has a lower interest rate than unsecured loans, making it a more appealing option for businesses seeking capital. It also allows consumers to repay the loan over a longer period of time, decreasing the monthly installment cost.
Equipment finance is a common financing option for Indian firms who need to buy equipment but lack the funds to do so. This sort of financing enables firms to buy critical equipment without sacrificing their operating capital, as well as to spread the cost of the equipment throughout its life span.
A solid credit score and a steady financial history are required for the borrower to be qualified for equipment financing. To secure the loan, the borrower must also offer collateral or a personal guarantee. Often, the equipment being funded serves as collateral itself.
The loan amount available through equipment financing is often up to 80% of the cost of the equipment, with payback periods ranging from 3 to 7 years. Because of the additional risk connected with the loan, interest rates on equipment financing are often higher than on regular loans.
One of the most significant benefits of equipment financing is that it allows firms to buy critical equipment without having to pay for it up front. This can assist organizations in retaining working cash and investing it in other areas of the business that are of importance towards overall development.
Equipment financing might be advantageous for organizations that require regular equipment upgrades. Instead of purchasing new equipment every few years, firms may finance it and improve it as needed. This can help organizations maintain a high level of production while remaining competitive among other companies in their industry.