Whether it is small or big, every business requires funds to grow and stay relevant in the long run. However, to do this firms need an adequate corpus of funds which may not be always available. This is when borrowing money becomes the only viable option. While some companies may go ahead with offering Equities to raise external funding, others might stick to applying for a Business Loan.

Business Loan meaning

A Business Loan is a Secured Loan offered by various banks. It can be availed of by self-employed persons, shopkeepers, sole proprietors, etc. Such a Loan enables businesses to meet expected and unexpected expenses.

Types

A Business Loan can be of various types. This enables lenders to effectively cater to the needs of several types of businesses. Some of the different types offered in India are:

Term Loan

It should be repaid at regular intervals over a pre-determined period. This Loan may be classified into long-term, intermediate-term, and short-term Loans.

Loans under Government Schemes

The Indian Government has started several Loan schemes for individuals, women entrepreneurs, MSMEs, etc., engaged in the service, trading, and manufacturing sectors. These Loans are offered by NBFCs, Private and Public Sector Banks, Micro Finance institutions, etc., to deserving entities. Some of these include the Mudra Loan, Loans under schemes like Startup India, Stand-Up India, etc.

Working Capital Loan

This Business Loan is utilised by start-ups, individuals, MSMEs, etc., to meet the daily needs of their businesses as well as to cover the following expenses:

• To pay for the cost of services used for business expansions
• To purchase raw materials
• To pay salaries of employees, etc.

Overdraft facility

This refers to funding offered by banks that enables an account holder to retrieve cash from their account even if their account balance shows zero.

Letter of Credit

This credit is typically utilised by trading businesses where the lender provides them with a funding guarantee. This type of credit limit is given to companies which deal in international trading and can be used for imports as well as exports.

Machinery Loan

Also called Equipment Finance, is a Business Loan offered by lenders that lets businesses invest in new machinery or equipment. This type of Loan can also be used to upgrade existing equipment or machinery.

Besides this, businesses may also avail of Invoice or Bill Discounting, Point-of-Sale or POS Loans, etc.