Types of Business Loans in India

Business loans are significant financial resources for the operation of business ventures, capital expansion, and other financial requirements. India has various types of business loans, and these are classified to meet the various expenditure needs of the businesses. Also, WeCredit a fintech organisation provides business loans. Here’s a comprehensive guide to the types of business loans available in India.

Comparison of Business Loan Types in India

The different types of business loans available in India are categorized below to simplify understanding. This table provides a quick overview of the key features and uses of each loan type.

Loan Type	Description	Key Features	Uses
Term Loans	Loan for a specific period with interest	The loan amount depends on credit history and business requirements. Tenure: 1-10 years. Interest rate: Fixed or variable. Repayment: Monthly, quarterly, or other.	Capital expenditure, facility acquisition, expansion
Working Capital Loans	Short-term loan for daily business needs	Loan amount computed from turnover and working capital needs. Tenure: Upto 1 year. Interest rate: Higher than term loans. Repayment: Options to pay interest only or defer payments.	Daily expenses, purchasing, materials, stock
Equipment Financing	Loan to purchase equipment or machinery	Loan amount up to 90% of the cost of equipment. Tenure: 1-5 years. Interest rate: Depends on equipment value, credit history, etc. Repayment: Based on equipment life.	Manufacturing, construction
Invoice Financing	Loan based on outstanding invoices	Loan amount: 80-90% of the invoice amount. Tenure: Until the customer pays the invoice. Interest rate: Varies depending on invoice amount and credit record. Repayment: When a customer pays the invoice.	Interim financing, working capital
Business Credit Cards	Credit line for business expenses	Credit limit based on business financials and credit records. Interest rate: Generally higher than term loans. Repayment: Monthly.	Miscellaneous daily and work-related costs
Merchant Cash Advance	Advance on credit card sales	Loan amount based on average monthly card sales. Tenure: 3-18 months. Interest rate: Costlier than traditional loans. Repayment: Agreed percentage subtracted from daily or weekly sales.	Cash flow emergencies
Overdraft Facility	Line of credit to withdraw from current account	Limit: 7% fixed + floating. Interest rate: Varies depending on usage. Repayment: Flexible.	Contingency purposes, emergencies
Microfinance Loans	Short-term loans for small businesses	Loan amount: Upto Rs. 1 lakh. Tenure: Short to medium-term. Interest rate: Varies, may be subsidized. Repayment: Flexible.	Small business capital
PMMY	Government loans for small businesses	Loan amount: Upto Rs. 10 lakhs. Categories: Sishu (up to Rs. 50,000), Kishore (Rs. 50,000- 5 lakh), Tarun (Rs. 5-10 lakh). Interest rate: Competitive. Repayment: Depending on the business plan.	Business growth
SIDBI Loans	Loans for MSMEs by SIDBI	Loan amount: Depends on scheme and business needs. Tenure: Short to long-term.  Interest rate: Competitive. Repayment: Depends on cash flow and project profitability.	Working capital, equipment acquisition, business extension

1. Term Loans

Term loans are special business loans that involve a sum of money that is borrowed and then paid back over a specific time with interest. These may be with or without collateral.

Key Features:

Loan Amount: Variable and depends on the credit history of the borrower and specific requirements of the business.

Tenure: Broadly, it can span from 1 to 10 years, based on the degree of the risk posed to brand reputation.

Interest Rate: Analyze it as fixed or as variable.

Repayment: Such payment structures can include monthly, quarterly, or any other agreed payment structure.

Uses: This is suitable for capital outlays, facility acquisition, and expansion, and any project with longevity investments.

2. Working Capital Loans

Some of them are as follows The working capital is a short-term loan that is used to meet the day-to-day requirements of a business organization and these include.

Key Features

Loan Amount: It has been computed from the turnover and working capital necessary to support business activities.

Tenure: Usually up to 1 year but if some clinical data are registered there it could be prolonged.

Interest Rate: It is higher than term loans because they are supposed to be short-term.

Repayment: Options to pay interest only and/or defer some payments for certain periods depending on the borrower’s liquidity.

Uses: As a source of working capital for the daily expenses, purchasing, materials, stock, and other generalties expenses for a business.

3. Equipment Financing

Equipment financing is a loan whereby a business can acquire new or used machinery, equipment, or even vehicles used in business.

Key Features

Loan Amount: In some cases, the insurers may be required to pay up to 90 percent of the cost of the equipment.

Tenure: 1-5 years.

Interest Rate: This will depend on the value of the equipment, the credit history of the borrower, and the agreement on the loan, amongst other factors.

Repayment: According to the specific useful life of the equipment that it adopted for its use in the production process.

Uses: Beneficial for manufacturing industries, construction firms, and any firms, which necessarily need large equipment.

4. Invoice Financing

Invoice financing is a method where a business can borrow cash based on the amount of outstanding invoices. Asset Management helps enhance the cash position since it frees up funds locked up in slow-moving receivables.

Key Features

Loan Amount: Regarding the amount of credit approved against the invoices, it could vary from 80 to 90% of the total invoice amount.

Tenure: Until it is fully paid by the customer for the invoice generated.

Interest Rate: Again, this will vary according to the invoice amount and credit record of the business involved.

Repayment: Where the customer has paid money through an invoice issued by the supplier.

Uses: To be an interim measure for financing running expenses, and to fulfill the time between sending out invoices and receiving payments in return.

4. Invoice Financing

Invoice financing is a method where a business can borrow cash based on the amount of outstanding invoices. Asset Management helps enhance the cash position since it frees up funds locked up in slow-moving receivables.

Key Features

Loan Amount: Regarding the amount of credit approved against the invoices, it could vary from 80 to 90% of the total invoice amount.

Tenure: Until it is fully paid by the customer for the invoice generated.

Interest Rate: Again, this will vary according to the invoice amount and credit record of the business involved.

Repayment: Where the customer has paid money through an invoice issued by the supplier.

Uses: To be an interim measure for financing running expenses, and to fulfill the time between sending out invoices and receiving payments in return.

5. Business Credit Cards

Business credit cards are referred to as credit cards that afford the business entity a line of credit that may be used to undertake several expenses. They are provided with the credit line limit before the agreement, and they enable the manager to deal with working capital requirements in the short term effectively.

Key Features

Credit Limit: As evaluated by their business financial conditions and credit records.

Interest Rate: Generally higher than term loans or otherwise known as expatriate rate depending on the borrower’s country of origin.

Repayment: Monthly, where the minimum payment modalities are provided to customers.

Benefits: Benefits include saving money in the form of cashback, reward programs, and expense tracking.

Uses: For miscellaneous daily and work-related costs that cannot be categorized into entertainment or office-related items.

6. Merchant Cash Advance

A merchant cash advance offers a business a large sum that is paid back from the selling of credit and debit card transactions in an agreed percentage for a certain period.

Key Features

Loan Amount: It has been estimated using the average monthly card and card cash sales.

Tenure: Temporary, ranging from 3 to 18 months staff in advisory projects.

Interest Rate: They are costlier than traditional loans as they reason of attracting higher risk.

Repayment: Subtract agreed amounts from the total sale repeatedly on a daily or weekly basis.

Uses: For organizations that receive a large part of their revenue through credit card sales and would require the cash as soon as possible.

7. Overdraft Facility

An overdraft facility is a line of credit which means that the business can withdraw more than has been in its current account.

Key Features

Limit: Where of 7% – fixed, the rest – floating and determined by the borrower’s credit profile and banking history.

Interest Rate: This cost is incurred depending on the level adopted in the actual practice of an organization.

Repayment: Dependent on cash flow therefore can be considered as flexible.

Security: Is either backed or not backed or backed by collateral.

Uses: For contingency purposes to pay for emergencies or any other unforeseen expenses that may be experienced while running the business.

8. Microfinance Loans

Microfinancing is short-term loan funding to micro and small business ventures, particularly in rural and pre-urban centers to enhance business and economic growth.

Key Features

Loan Amount: Generally up to 1 lakh.

Tenure: Short to medium-term.

Interest Rate: It varies depending on the institution and its training programs and may be subsidized in part or in full.

Repayment: Flexible depending on the number of people accessing this center either for consultation or hospitality fees charged.

Uses: For business people and individuals requiring small capital to run their enterprises.

9. Mudra

Mudra means ‘symbol’ or ‘mark’ in Sanskrit and has its connotation as a guarantee in the Hindi language, while Yojana refers to ‘scheme’ or ‘plan’.

PMMY is the scheme of the Government of India to offer collateral-free loans up to Rs. 10 lakhs for the noncorporate, non-farm sector, small and micro enterprises.

Key Features

Categories: The Sishu category covers investments up to Rs.50,000, and the Kishore category is between Rs 50,000 and Rs 5 lakh; this is followed by the Tarun category, which ranges between Rs 5 lakh and Rs. 10 lakh.

Tenure: Depending on how long a child stays in elementary school, you can get a jump on college as early as 5 years in advance.

Interest Rate: Paying, sometimes even way below the going rates in the market.

Repayment: Depending on the business plan and strategies adopted to achieve the goals of the business.

Uses: To enhance the growth and development of these sectors and as a result support small business and startup companies.

10. SIDBI Loans

SIDBI provides different loan programs to boost the MSME sector in India which is as follows

Key Features

Loan Amount: This depends on the underlying scheme and the business needs to arrive at the appropriate attraction sacrificing other important factors.

Tenure: Short to long-term.

Interest Rate: Stakeholder competitive, depending on the scheme of the movers.

Repayment: Competition, depending on whether cash inflows and the profitability of the projects match the company’s long-term resources and capabilities.

Uses: For working capital, equipment acquisition, business extension, and updating or automating.

Conclusion

By expanding acquaintance with the kinds of commercial credit accessible in India, those people can prepare potential selections for financing depending on their requirements. Whether the business needs more space, wants to buy equipment or machinery, requires financing for the operations, or funds for starting a new business venture, there is a suitable loan product for each of the intended business needs. It is always wise to compare various products offered in the loan market and choose the right product that fits your needs and capacity to pay.lenders like