Finance is the blood of a business. Any business needs ample amount of finance to survive, run and expand. Business loans provide financial assistance to companies to grow and expand by financing equipment, working capital needs or buying machinery to boost the business.
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There are various types of business loans. Following are the types of business loans:
As the name suggests, an overdraft means overdrawing from your current account. For this facility, you will be charged an agreed rate of interest. If you do not overdraw from your account, you will not be charged any interest.
Term loans can be availed for short term, long term or an intermediate term. Term loans are of two types, unsecured business loans and secured business loans. A secured business loan requires that you pledge collateral with the bank, whereas, an unsecured business loan requires no security/collateral. Secured business loans have lower interest rates when compared to unsecured business loans.
Bill discounting is an instant cash back method. You have to present bills of exchange, which will be encashed for an amount lower than the bill value. The difference is kept by the bank as discounting charges. You will need to submit important documents like invoices, transportation receipts, and so on which validate business transactions.
SEE ALSO: Types Of Business Loans
A letter of credit is also known as LC. An LC is a letter of guarantee issued by the buyer’s bank declaring that the buyer will honor the payment, when the seller delivers the goods and services as agreed in terms and conditions of sale. LC is generally used in international business.
Mudra Yojana is a business loan scheme launched by the government for small and medium businesses in India. The Government provides funds to banks and banks in turn fund businesses in India. So, banks offer MUDRA loans at a lower rate of interest, compared to standard business loans.
Following are the eligibility criteria to avail business loans. Though eligibility criteria differs across banks, some points remain the same.
Following are the documents needed for business loans:
Banks have various business loan schemes. Therefore, it is best to first research various business loan schemes. You can find data on these schemes on bank websites.
The bank needs to know what your business is all about. They need to know what they are funding you for. They need to know if the business is feasible.
The next step in the loan syndication process is an interview. The banker will want to interview you. Therefore, prepare well, just as if you are presenting the business plan to your investors. This will maximize the chances of getting the business loan. A banker might ask you the following questions:
To avail a secured business loan, collateral is needed. This reduces the risk of defaults. It will also improve the chances of getting a loan.
Banks will want to know the financial performance of your business. They will delve into the past financial performances of the business. They would also like to know the projected financial performance of the business. Banks usually fund businesses that grow steadily.
If you do not clear the banker’s interview, they will retain a copy of the business plan and make a request for more documents. These can be financial statements, tax returns, and so on. If you clear the interview, bankers will initiate loan processing.
See Also: Business Loans By Government
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