types of business loans

Whether it is for managing a day to day operational expenses of your company or to start/expand the business, you require funds and the convenient way of sourcing it is to secure a business loan.

What is a business loan?

Business loan is financial assistance extended to help your small business to invest in infrastructure, assets, operations and many such business requirements. Small and Medium enterprises, popularly known as SME’s can avail loans either from banks or NBFC’s to maintain their business operations.

We, at lending Kart, offer business loans to SME’s across India with attractive terms and faster processing time. We customise business loans to suit your specific needs and fit into your business strategies to enable a smooth workflow.

Types of Business loans:

You cannot follow “the one size fits all “approach when it comes to acquiring business loans. There are different types of SME loans available in the market that cater to the specific purpose of the business. Let us understand the different types business loans available for the entrepreneurs.

Here is the list of common types of business loans available for SME’s in India.

  1. Short term loans
  2. Term loans
  3. Equipment loans
  4. Invoice financing/loan on receivables
  5. Line of credit or bank overdraft
  6. Supplier credit

Short term loan:

  1. Short term loan is also known as working capital loan and is meant to take care of the day to day operations of the business.
  2. This type of loan infuses liquidity into the business and helps in dealing with the shortage of cash or irregular flow of cash. Working capital is extremely important to keep the day to day business rolling.
  3. The tenure of the loan ranges from 3 to 18 months and we at Lending Kart offer short term loans for a period of 1 to 24 months to make it more favourable for SME’s.

Term loans:

  1. Term loans are long term loans with higher amounts and taken for a specific need, most often for the capital expenditure of the business.
  2. The tenure of the loan ranges from 5 to 20 years and is always supported by collateral. Term loans are extended for fixed tenure and have a fixed or floating interest rates.

Equipment loan:

  1. Equipment loans are typically used by SME’s to procure new machinery or upgrade the existing ones.
  2. The loan is normally sought by manufacturers, traders and service providers engaged in the industrial units. It is a secured loan wherein the lender will have rights over the machinery in case of default by the borrower.
  3. The tenure of the equipment loan ranges from 1 to 3 years and one can avail loan up to 2 crores.

Invoice financing:

  1. Invoice financing is the quick way of infusing cash into the business using the outstanding invoices.
  2. A loan is secured against the unpaid bills and the tenure period equals the invoice due date.
  3. The debt amount given by the finance company is usually 80% of the invoice value.
  4. Invoice financing facilitates instant cash flow into the system instead of waiting for the client to pay the invoice amount

Bank overdraft:

  1. Bank overdraft, also known as a Credit line, is a revolving credit facility wherein you can withdraw from your business account of the bank, up to a sanctioned limit, even without a required balance in the account.
  2. This is one way of by-passing the entire loan application process to get instant funds into the business.
  3. With Overdraft facility, you only pay the charges for the amount of money used for a specific period. The good news is after you repay the amount, the loan amount is restored back to the limit, to be drawn as and when the need arises

Supplier credit:

  1. Trade credit, also known as supplier’s credit, is a credit facility provided by the supplier of goods to the buyer.
  2. The supplier sells the goods on credit and allows you to pay for it later.
  3. If the money is not returned in time, you may end up paying a higher amount for the same purchases.

Who provides small business loans in India?

Having discussed the common types of business loans available for small businesses let us delve upon the various financial institutions that provide small business loans. Basically, banks, government institutions and NBFC’s including new age online lenders are actively catering to SME segment to fulfil their working capital requirements. However, bank loans are time taking and involve huge amounts paperwork. Online lenders like Lending Kart have revolutionised the lending space by incorporating advanced technology tools like AI and Analytics.

Why Lendingkart is a right choice for SME business loans?

Lendingkart exclusively focuses on extending business loans to the SME sector and have a deep understanding of their financial needs and their working structure. 

  1. flexible EMI options,
  2. quick processing time
  3. competitive interest rates
  4. minimum documentation
  5. no prepayment charges
  6. online loan application

Charges and interest rates at Lendingkark

Loan type

Amount size

Processing fee

Tenure period

Interest rates

Collateral free business loan

Starting from Rs. 50000 up to 2 Crore

1-2%

Up to 36 months

16%-27% per year

Business Loan Types FAQs:

1. Why should I take a business loan?

Maintaining the cash flow in the business is highly significant to keep the business operations running smoothly and the business loan is the way to infuse the liquidity into your business.

2. How to make the best use of the business loan amount?

Business loan can be used for various short term business goals such as working capital management, inventory purchase and purchase of equipment.

3. What is the eligibility to secure a business loan?

An established business that has been in operation for more than 6 months with a specified turnover forms the eligibility to secure a small business loan.

4. What is the normal approval time for a business loan?

Business loan approval in banks may take 15 days or beyond but Lending Kart has the reputation of disbursing loans within 3 working days if you meet the eligibility criteria and provide all the documents.

5. Is pre-closure allowed in business loan?

Yes. Pre- payment of a loan is allowed, but comes with the cost, however Lending kart does not charge anything extra for pre closing the loan.

6. Can I apply for a small business loan again for my working capital needs?

Yes. You can avail a business loan again, but after repaying the current loan.