Top 7 Types of Business Loans to Look Forward to in 2022
Businesses that have had impressive records of credit management in the past can easily avail funding today in the form of business loans available both online and offline. Financing institutions provide several types of business loans customised for varied funding needs of enterprises, which can range from small everyday expenses to high-value financing needs like asset purchase and new office set-up. It can be useful to be well-informed about the different types of loans one can avail for the purpose of business funding.
Accordingly, you can proceed to send your business loan application online with your selected lender based on the loan option selected as per your requirements. Below are mentioned some common business loan options that a company can go for based on its specified financing needs.
The primary characteristics of these advances that make them term loans include ther set tenure within which borrower repayment is mandatory. These types of business loans can either be short-term, mid-term, or long-term loans, bringing under such financing structure a variety of loan types for businesses.
For short-term loans, the tenure can range between 6 months and 2 years. In case of mid-term business loans, borrowers can avail a tenure flexibility of up to 5 years while for long-term advances, tenures extend beyond 5 years. These business loans are available under all financing categories too, making them suitable for varied funding requirements of businesses.
Working Capital Loans
Working capital loans are categorised under term loans only but with customisation for operational funding needs of a business. A business can avail a working capital loan with a tenure between 1 and 5 years depending on repayment suitability of the firm. The financing is usually repayable in EMIs determined as per the amortization schedule of the lender, and carries both principal and interest components in parts.
A business can avail a working capital loan for various operating funding needs, including debt payments, wages and salary payments, restocking of inventory, seasonal increase in production, and many more.
Equipment and Machinery Loan
Equipment and machinery loans are types of business loans usually available as high-value financing options. These loans are dedicatedly customised to fulfil fixed asset purchase and upgradation needs of the business. You can avail a secured equipment and machinery loan for a duration of 10 to 15 years depending on the asset purchase financing need. If these loans are unsecured, a repayment tenure of up to 5 years is available to pay back your loan liability. These loans are also useful when it comes to repair or replacement of existing machinery and equipment of the business.
These are short-term credit options available for businesses, especially enabling them to pay off their debtors and maintain the trade cycle optimally while making the most of available market opportunities. Under the financing arrangement, the bills receivable by the business are leveraged to raise funding based on their total value. The lender is presented these bills, whereby the lender agrees to provide funds at a discounted rate after close assessment of business creditors and past records. It is one of the best ways to raise operational business finance as the borrower is not left with any liability for repayment. The financing so provided is recovered by the lender from business creditors holding such invoice debt to the business.
Line of Credit
Line of credit is, in essence, not a distinct business loan type but a way of utilising the financing. It allows businesses to use funding only up to a limit as required by the borrower at a point in time from the total available financing. One of the striking benefits of this loan arrangement is that it makes financing affordable through interest levy only on the utilised loan amount and not on the sanctioned value. The loan amount used then requires repayment in EMIs based on the lender’s amortization schedule.
Similar to the line of credit, overdraft facility is a more traditional form of short-term financing businesses use., It is availed on the current account of the borrower operative with the lending institution. Repayment of funds availed through overdraft needs to be made in a lump sum most times, with EMI-based repayment facility provided by certain lending institutions.
Government Scheme-backed Business Loans
Businesses can also look out for types of business loans that are provided with subsidy benefits backed by Government-based schemes. Such schemes are introduced primarily aiming to uplift the SME and MSME industry in India. The Mudra Scheme and CGSMT are two common examples of Central Government-backed business loan schemes that provide loans at subsidised rates.
You can examine and compare the pros and cons of each of these types of business loans when seeking funding to introduce to your company or firm. Check out factors like interest rates and charges levied, repayment tenure flexibility, total loan amount available, and such other crucial factors before finalising.