Businesses, regardless of size, often require additional funds to meet daily operational needs. The necessary finance is influenced by the business's capital intensity and its stage of development, whether it is in the genesis, growth, or maturity phase. Businesses typically require funds primarily during the initial stages and for growth opportunities. This article will cover several forms of business loans approved by financial institutions in India.
There are 8 main types of business loans in India.
Working capital loans are utilized by individuals, entrepreneurs, startups, and MSMEs to address everyday company needs and support business growth by improving cash flow, acquiring raw materials, increasing inventory, covering payroll, hiring employees, and other related purposes. Working capital loans are predominantly short-term loans of the loan amount up to Rs. 40 lakh whereby the repayment tenure is up to 12 months or may surpass business requirements. The interest rate supplied by Banks/NBFCs is a bit higher, as compared to long-term loans or general business loans. This loan type involves the lender establishing a maximum borrowing amount for the business, which can only be used for designated business activities.
A term loan is a type of loan that must be repaid through scheduled payments over a specific duration. Loans are classified as short-term, intermediate-term, and long-term based on their duration. The repayment period for both categories varies from 12 months to 5 years. Short-term loans last for 12 months or less, whereas long-term loans have a tenure of 5 years or longer. The collateral-free business loans are available up to Rs. 2 Cr but can be increased depending on business needs. When you apply for a term loan, the lender will decide the repayment period.
A letter of credit is a credit limit commonly utilized in trading businesses, where a bank or lender provides a financial guarantee to enterprises involved in international trade.Entrepreneurs can use letters of credit to import and export. Enterprises doing business overseas frequently deal with unknown suppliers, therefore payment assurance is required before any transaction can be completed. A letter of credit is essential for ensuring payment certainty for vendors.
Invoice Discounting is a financial arrangement where the seller receives an upfront amount at reduced rates from the lender. This requests buyers to contribute to increasing the revenue of financial institutions through interest rates and monthly fees.
If you sell products to Mr Singh and he provides you with a letter of credit from the bank for 45 days, you can request money from the bank before the 45-day period ends. In this case, the bank will charge you an interest rate, which is known as a discount for the seller. Furthermore, assuming that the amount you were meant to get was Rs. 10 lakh on or after 45 days; using the bank's discount or interest rate of Rs. 50,000, you now receive Rs. 9,50,000 in return from the bank.The buyer will deposit Rs. 10 lakh into the designated bank account on the 45th day without fail.
A bank's overdraft facility allows account holders to withdraw funds from their account even if the balance is zero. Interest is only paid on the amount that has been used from the approved limit, and it is calculated on a daily basis. The approved credit limit is determined by the account holder's rapport with the bank, credit history, cash inflows, and any previous repayment records. The overdraft limit is changed every year and can be utilized in any manner if the interest is paid on time. An overdraft facility is provided by using collateral, particularly fixed deposits held with the bank.
The equipment finance or machinery loan is a funding option supplied to the borrowers for them to purchase new equipment/machines or to upgrade the existing one. Equipment finance is mostly utilized by large corporations and businesses involved in the manufacturing industry. Businesses that utilize equipment finance or machinery loans can also receive tax advantages. Interest rate, loan amount, and repayment tenure will differ among lenders.
The Government of India has initiated various loan schemes for individuals, MSMEs, women entrepreneurs, and other entities engaged in trading, services, and manufacturing sectors. The loans under government schemes are offered by various financial institutions, such as Private and Public Sector Banks, NBFCs, Regional Rural Banks (RRBs), Micro Finance Institutions (MFIs), Small Finance Banks (SFBs), etc. Key government loan schemes include Mudra Scheme as part of PMMY, PMEGP, and CGTMSE.
POS Loans or Merchant Cash Advance is a system in which a business owner running an enterprise pays a lump sum payment in advance to suppliers through his/her daily or future credit or debit card transactions. Several times, merchants of SMEs experience a short-term cash crunch. Therefore, merchants choose POS loans to alleviate liquidity shortages in their business. POS loans have a higher interest rate compared to other types of business loans. The repayment service is linked to debit or credit purchases through Point of Sale (POS) terminals deployed in retail stores, grocery stores, supermarkets, and shopping malls.
As of now, you must have acquired a rough concept regarding the varieties of business loans supplied by lending institutions in India. Business loans can be accessed at modest and attractive interest rates with flexible and easy EMIs. The finest business loan deal can be found by comparing loan offers from top private and public sector banks, NBFCs, Regional Rural Banks (RRBs), Small Finance Banks (SFBs), microfinance organisations (MFIs), and other banking and financial organisations.
No, mediclaim is a type of health insurance policy that offers limited coverage for hospitalization expenses, whereas health insurance provides comprehensive coverage for various medical services.
Generally, yes. Mediclaim premiums are typically lower as they offer limited coverage compared to health insurance plans.
You can switch from a mediclaim policy to a health insurance plan based on your evolving healthcare needs and preferences.
Health insurance plans often cover outpatient services, including doctor consultations, diagnostic tests, and preventive care.
It depends on the specific mediclaim policy. Some policies may include maternity benefits, while others may offer them as an optional add-on.
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