Funding is the powering fuel of any business. No business, irrespective of how big or small, can survive without funds required for its sustenance and development. Operating your business can be equally a rewarding yet daunting task.
Acquiring financial assistance to support your business in different ways, such as purchasing assets, arranging shop space and working capital, etc., is a significant aspect of the growth of your business.
However, initially attracting funds to suit your business requirements can be a challenging process. As a business owner, you may be seeking different options to avail funds for your business.
Read further to know more about the business funding options in India to help you select the most viable option for your business.
Major Business Funding Options Available
Working capital loans
A working capital loan helps a business stay afloat during tough times. It’s a short-term business loan to support everyday business operations, such as employees’ payments, compensation, and accounts payable.
The loan can be both secured or unsecured. It is not used to fund long-term investments such as assets or inventories or a business expansion. In case the loan is offered in exchange for collateral, it attracts a low-interest rate.
The interest is generally charged only on the amount utilised by the business and excludes the principal amount approved as a loan.
The usual period of a working capital loan is 6-48 months. In India, the general interest rates for such loans range between 11-16% depending on the lender.
There are different types of working capital loans such as short-term, accounts receivable, bank overdraft, trade creditor, equity funding, and factoring loans. You can view details of a business loan online by visiting the online banking facility of your chosen bank.
Term loans
Term loans are considered the most common funding option for a business loan. These loans are acquired for specific business activities such as business expansion, cash flow, purchase of equipment and inventories, or paying a debt. The applicant should have a regular source of income when applying for a term loan.
You must repay a term loan in regular intervals and installments irrespective of the business’s financial situation. The lump-sum amount is disbursed in exchange for repayment in the form of monthly EMIs.
You can undertake a short or long-term loan depending on your business’ demands. Short-term loans are 1 to 5 years and long-term 10 to 15 years.
This loan is considered cheap for the borrowers. They can avail of tax deductions, and on the interest paid, claim tax benefits. There are numerous financial institutions in India offering business loans online in the form of term loans.
Business line of credit
A business line of credit is a revolving loan that works on the same lines like credit cards. It offers the flexibility to borrow a sum at any time per a business’ requirements.
For a BLC, you will have to open an account with the lender. This account will have a predetermined upper limit of funds approved by the borrower. Now, when required, you can easily withdraw money from this approved sum without undergoing the lengthy process of applying for a business loan.
An interest rate is charged only on the sum withdrawn and not the principal-approved amount. You can repay in timely instalments/EMIs.
You can borrow an additional amount from this existing account after exhausting the overall approved amount and repayment of the borrowed amount. This is an easy method of operating your business utilizing business loans.
Overdraft loans
Overdraft is a credit facility that allows an individual to withdraw a sum from a current account even with a zero balance. This extended credit facility can be used to execute short-term business plans or during emergencies. The interest rate varies per bank’s terms. The borrower must have an account with the lending bank.
Loan against property
Business owners can take loans against property. Such options can rescue one in situations where an individual does not have a good business credit history or has a lousy credit utilization ratio.
Property as collateral should be free from any encumbrances or litigation. Interest rates charged on such loans are comparatively lower than other business loan options. Durations on such loans generally range between 15-20 years.
Property collateral assures lenders that if the borrower cannot repay, they have a source to make good the defaulted amount.
Loans under government schemes
The Government of India has taken several initiatives to support small businesses, women entrepreneurs, MSMEs, and other corporate entities under different sectors. Different financial institutions offer these business loans, such as private and public banks, non-banking financial institutions, regional banks, etc.
Such business loan schemes include Mudra Scheme under Pradhan Mantri MUDRA Yojana, Prime Minister Employment Generation Programme (PMEGP), Startup India, PSB loans in 59 minutes, etc. These schemes are easily accessible, and a business loan online can be obtained by visiting their respective official websites.
Professional loans
It is a business loan available only to self-employed professionals, such as chartered accountants, lawyers, etc. The loan approval relies on the professional’s banking profile and credit history.
If the loan amount exceeds a certain threshold, the professional may be required to submit collateral or mortgage for loan approval. Professionals can use such loan amounts to kick start a new business venture or expand their existing business.
There is another option, such as Point of Sale (POS) Loans, a personal loan. It is a convenient method to make large purchases by breaking them into small and regular instalments. Comparatively, the POS loan has a lower interest rate than credit cards.
By now, you must have gained insight into the different funding options available for your business loan. Apply and access a business loan online for easy management of funds.
