Capital is a frequent problem for small and medium-sized organizations. The ideal answer to this problem may be a business loan. You’ll have access to money that is specifically suited to your requirements, such as business loans for infrastructure investment.
These loans also keep your business running smoothly during critical operations by providing stability. Financial institutions in India offer several types of Business Loans to entrepreneurs based on their business type and requirement. Let’s explore more about Business Loans in the blog.
Types of Business Loans in India
Businesses take out working capital loans for a variety of reasons. It can be for day-to-day operations, expanding the company or purchasing raw materials and stocks. Different types of Business Loans have been listed below.
Short-term loans, such as capital loans, often have a one-year payback period.
collateral-free loans or unsecured loans don’t need the borrower to mortgage anything as security for the loan. The interest rate is slightly higher than long-term or general Business Loans.
Entrepreneurs can use a letter of credit for import and export purposes. Banks give a payment guarantee to businesses dealing outside India.
Government assistance via public sector banks, NBFCs, RRBs, PMMY, CGTMSE, Standup India, Startup India, and PMRY.
Business Loan Clauses
Security Cover Clause
The clause defining the collateral or personal guarantee against the loan is the security cover clause. It allows financial institutions to seize the asset kept by the borrower if the loan is defaulted. The bank can demand additional security when the value of the current security falls due to market fluctuation. You can take a loan without pledging any collateral only on unsecured loans.
Repayment Clause
This is the most important clause of the loan agreement and determines the loan period. On-demand and fixed-term are the two types of repayment options available. On-demand needs you to always keep a sum of money for repayment, as the bank can demand it at any time. This makes managing business expenditures very difficult. Selecting a repayment clause with a set duration is the ideal option for businesses.
Default Clause
Generally, non-repayment of a loan to a bank is considered a default. The term default may differ from bank to bank; hence, it is important to clarify the exact definition. A lender can declare default in case of the borrower’s involvement in a criminal or civil case or borrower’s death.
Interest Rate Fluctuation Clause
A lender might impose two different types of interest rates—fixed and variable on your loan agreement. Regardless of the market condition, you must pay a fixed interest rate on a fixed interest rate agreement. On the other hand, if you agree to a variable interest agreement, you have to pay an interest rate based on the market condition. As an applicant, you should carefully negotiate an interest rate type that suits your loan requirements.
Business Loan at a Low-interest Rate
Convincing a financial institution about the ability to repay the loan on time is difficult. It’s different from asking for money from a friend. The following are some suggestions that help secure a Business Loan at low-interest rates.
Cash Flow and Repayment History
The lender checks the business credit profile whenever anyone applies for a Business Loan. They always prefer to offer loans to businesses with sufficient cash flows and good repayment history.
Your Intent
The lender always analyzes the requirement of a Business Loan. Business loans are divided into different categories. You need to mention the category to make the loan application procedure transparent. For instance, when you need a loan to buy office equipment, you must apply for equipment loans. Specifying the reason makes the application process faster.
Healthy Credit Score
A good credit score is one of the most important factors considered by lenders when approving an unsecured Business Loan. A Business Loan at a low-interest interest rate must have a credit score of 700 or above. When you are looking for a revenue-based loan, you can get a loan only with a good credit score.
Financial Statement
Before applying for a Business Loan, keep the company’s financial records updated. The lender reviews the business financial statements and records to determine creditworthiness. It makes it easier for you to get a quick loan at a lower interest rate.
Check Your Loan Amount Eligibility
Be sure to check your loan eligibility before applying for a Business Loan. When the loan amount exceeds your eligibility, you do not get the desired amount and deal with financial difficulties. So, do a proper analysis before filing a loan application.
Conclusion
Business Loans may typically be obtained at terms and interest rates that are both reasonable and enticing. Comparisons can be made between many leading private and public sector banks, non-banking financial institutions (NBFCs), regional rural banks (RRBs), small finance banks (SFBs), and a large number of other banking and financial institutions to locate the best deal on a Business Loan. Pick a Business Loan after careful research and take a loan only if it suits your business needs.
