Business owners need loans for various purposes. They include starting new operations, expansion, inventory procurement, working capital, bill discounting, and dealer and vendor financing, among other requirements. Prior to applying for a business loan, you should be very clear about the purpose for which you need funds.
Types of Business Loans
Term loans are of three types: short term, medium term, and long term. As a business owner, you can avail any type of business loan depending on your financial status. The tenure of term loans ranges from 3 years to 10-15 years. Loan interest rates vary on the basis of the loan tenure. Term loans may be secured or unsecured type as well. In the case of secured loans, collateral security (land, property, business premises, or machinery) will have to be provided. Interest rates are lower for secured loans.
Overdraft or Temporary Funding
Overdraft refers to withdrawing more funds from the current account you have opened for your business. Lenders often specify the overdraft limit. If you stay within the limit, you will be charged only the agreed interest rate. A higher interest rate will be charged if you exceed the limit. As the next deposit clears the overdraft, it is ideal for meeting temporary funding needs.
Bill discounting at the bank where you have your business account enables you to get cash instantaneously on large credit sales or purchases. However, you will have to produce documents (trade invoices, bill of lading, truck receipts/railway receipts, etc.) to authenticate transactions.
Unsecured Business Loans
This is the most preferred type of business loan by entreprenuers . This loan is typically short term , though it comes slightly at a higher cost. There is no need to provide security or guarantor for obtaining this loan and the instalments are paid for a fixed tenure as EMI’s.Also the loan could be used for any business contingencies or expansion and the processing time taken is minimal if the file is processed thru experts.
How To Get Business Loans From Banks
Prior to approaching your bank, you need to prepare a comprehensive proposal, providing information about you, your company, the amount you want to borrow, how you are going to utilize the funds, and how you will pay back.
Banks would also want to know about the structure of your business, ownership details, location, future plans, main customers, and suppliers. Lenders evaluate your creditworthiness based on reliability and repayment capacity and by analysing financial statements and business records. A whole lot of documents have to be submitted for the purpose.
If you are applying for a business loan for the first time, you might find the whole thing to be a little overwhelming. At Finwizz, we specialize in helping entrepreneurs get business loans from some of the major banks with whom we have established relationships over the years. We will recommend the right loan depending on your requirement.