What are the different types of Business Loans?
A manufacturer’s needs are not the same as that of a trader’s. Neither are those of a retailer’s to that of an MSME. Therefore, multiple Banks/NBFCs provide different kinds of Business Loans for different purposes. It’s prudent to first assess your business’s exact requirements in order to know what kind of Business Loan is best suited for you. Term Loan: As the name suggests, a Term Loan is for a fixed period of time. There are Short-term Business loans and Long-term Business loans. Entrepreneurs can pick and choose from the two based on their requirements. A short-term Business Loan is typically for 12 months, while a Long-term Business Loan can extend as far as up to 5 years. Working Capital Loan: Businesses need funds to meet their day-to-day expenses such as paying utility bills, buying machinery, setting up equipment, upgrading inventory, employee salaries, expansion, etc. A Business Loan can be availed to meet such working capital needs without having to disturb your personal finances. Bill Invoice Discounting: Invoice Discounting or Bills Discounting is a special type of Working Capital Loan that’s designed for sellers of goods on credit. Under this form of financing, sellers can recover the total value of their sales bill from their Bank/NBFC even before it’s due from the buyer. The Bank/NBFC charges a nominal fee for the service provided. Letter of Credit: Used primarily in international trade, Letter of Credit is a financial instrument by which banks/NBFCs provide monetary guarantee to enterprises which deal in import and export of goods. This is especially useful when dealing with unknown parties and the supplier/exporter is looking for payment assurance. Overdraft Loan: An Overdraft is the amount withdrawn over and above the balance in one’s savings/current account. Banks/NBFCs allow businesses to overdraw upto an amount that has been previously decided, for a nominal fee.