Your Complete Guide For Taking A Business Loan

An Idea and investment are two major ingredients of a successful business. The first one comes out of your competency, and another one requires a plan. A sustainable plan is needed for gathering enough capital to support your business.

Taking a loan is one of the easiest ways to support your business financially. Here is a complete guide for taking business loans.

Types of business loans

Business loans are of two types – Fund based loans and Non-fund based.

Fund-Based Loans

These loans involve financial transactions between the bank and the customer.

They are further categorized as

  1. Term Loans: These provide the benefit of gaining huge capital initially, and then its repayment can be made in installments (EMI). The principal amount needs to be repaid in addition to the interest within the stipulated time limit.
  2. Balloon loans: Suitable for business which envision huge profits after some years. In Balloon loans, only interest has to be paid regularly, and the principal amount is paid later.
  3. Project Financing: It is usually taken up by businesses with long-term goals. It includes ärilaen kinnisvara tagatisel or industrial plants with huge machinery. Mostly, sponsors/equity investors are the stakeholders for capital generation.
  4. Working capital loans: These provide back-end support to businesses for sufficient cash flow in their day-to-day operations. It is of the following types-
  • Overdraft facility: This allows the facility to withdraw money more than the balance of your current account. It can be secured or unsecured.
  • Cash Credit: Loans are taken against the inventory and financial statement of the business to maintain working capital requirements.
  • Bill Purchase and discounting: A loan taken against the bills of exchange of a business after applying a discount and based on interest rates. This resolves the liquidity issues of the business.
  • SME collateral-free loans: Especially for small, medium enterprises, loans are provided with securing any collateral.
  1. Miscellaneous: Personal loan, gold loan, mutual funds and stocks, lease against property, unsecured loans against the company’s strong balance sheet, and good credit record are also provided.

Non–Fund based loans

No provision for withdrawal of funds is provided; rather, the bank takes up the responsibility in any default by the borrower.

  1. Letter of credit: To maintain trust between dealers, an undertaking is issued by the bank to maintain transparency in the business. It is mostly used in international trading business.
  2. Bank guarantee: An assurance letter released by the bank on behalf of its customer. It is mostly used in the real estate business.

How to apply for a business loan

You can apply for a business loan by visiting your nearest bank or online via the bank’s official website. Select a suitable plan as per your business model. Presently, there are no standard criteria for availing of business loans. It varies from bank to bank.

But, few things to consider are a good credit score, no past defaults, complete It returns of the applicant, and few collaterals, if possible. You should also have the necessary documents such as valid identity proof at the time of applying for a hassle-free experience.

If you want assistance regarding your business loan, get in touch with Fineto. Their professionals will ensure that you get clarity on your queries.