Over the past ten years, the Indian financial sector has evolved rapidly. Small businesses can secure loans from banks or alternate lenders. The NBFCs (non-banking financial companies) provide different types of loans depending on the business model.
Best Small Business Loans in India
Term Loan or Term Finance:
This is an unsecured loan for a specific amount that could range between ₹20,000 to ₹1Cr. These have a specified repayment schedule and may have a fixed or floating interest rate.
Loan Against Property:
A business can use its owned property as collateral to secure funds. Such loans are approved relatively quickly and the interest rates are typically lower than on unsecured loans. Such loans can be taken for as much as 25 years and could be as high as ₹75Cr, depending on the value of the property. The loan amount approved is usually around 60% of the market value of the property.
Working Capital Loans:
These are short-term loans intended for businesses that need funds for their daily operations. These loans give businesses the liquidity to keep their operations running, while they fulfill orders and discover newer sources of increase revenue. However, working-capital loans come with higher interest rates and have short repayment periods.
Merchant Cash Advance:
This type of loan is based on the volume of the monthly credit card transactions of a business. Such loans are also known as credit card receivable funding. Businesses can receive an advance of up to 200 percent of their monthly transaction volume. The repayment is usually a percentage of the business’s daily credit card sales. Retailers, restaurants and service businesses that receive most of their payments via credit card sales are the best candidates for such loans. While a merchant cash advance is easy to secure, the interest rate may be very high.
When a business needs to purchase office equipment, which may range from computers to machinery and tools and even vehicles, these loans come in handy. Equipment loans allow businesses to begin using the equipment and make monthly payments on the item(s). Since the equipment being purchased serves as a collateral, these loans are easy to secure and the interest rates are lower.
Lines of Credit or Pay Later Finance:
These loans approve a limit, while offering businesses the flexibility to withdraw the amount they actually need and pay interest only on that amount. When a business makes a repayment, the loan account gets replenished. These are unsecured loans and have short repayment periods. Moreover, there may be some processing fees as well.
Supply Chain Finance:
These loans allow businesses to liquidate their accounts receivables or use them as collateral to pay off their suppliers. Businesses typically receive a percentage of the accounts receivables as supply chain finance. This enables a business to receive uninterrupted supplies for the successful execution of orders.
Overdraft on Current Account:
A business can overdraw from its current account. While this is an easy source of funds, the interest rate is very high.
Professional Practice Loans:
These are designed for those who provider professional services, such as doctors, lawyers, chartered accountants and architects. Such loans are usually taken by the professional to set up a practice.
Franchise Startup Loans:
These are meant for entrepreneurs who need financing to set up their own franchise business.
Wondering where to get business loans in India? Check this article.
Hi, Mani Karthik here. Having lived in USA, India & Middle East, and worked for big MNC’s to startups, I have a lot to share with you. My aim is to help people, by sharing everything I’ve learned in life, through this blog. It’s read today by more than 150K people world over! I currently live in LA, California and visit India occasionally. Here’s my full story on who I am and why I blog. Connect with me on Facebook, Instagram, Twitter or WhatsApp (+001-408-489-4785). Happy to help! 🙂