Businesses require an adequate amount of capital to fund startup expenses or pay for expansions. As such, companies take out business loans to gain the financial assistance they need. A business loan is debt that the company is obligated to repay according to the loan’s terms and conditions.
TYPES OF LOANS
- Working capital - Working capital loan is one taken to overcome short-term shortage of cash. This is generally used to when cash in the business is not enough to take care of the day-to-day operations of the company.
- Term Loan - These are standard loans where you apply for a apply for credit for a specific purpose and get a lump sum amount. These are long-term in nature and often utilized for capital expenditure. The tenure is fixed, the amount of loan available is generally higher and depending on the credit profile of the business, the rate of interest can be lower. Lenders prefer term loans to be backed by collateral, but in some cases, it can be unsecured in nature.
- Equipment financing - These types of loans are predominantly for the manufacturing businesses. Equipments can be costly but can be crucial for the operation and expansion of a business. To purchase equipments, most banks have specialized loan products to meet this need.
- Invoice financing - Invoice discounting and financing is a powerful tool to raise capital. This can provide a great way for small businesses to find working capital. There is often a time lag between when a business raises an invoice and when it finally gets paid. In such a situation you can approach a bank or a financial institution to provide you a loan against the invoice.