- A business loan is an unsecured loan specifically intended for a business purpose. Business requires an adequate amount of capital to fund their day to day & pay for expansion activity.
- A business loan is a debt that the company is obligated to repay according to the term and conditions of the loan contract.
- Before approaching a lender for a loan, the owner of the business must understand how loans work. There are various types of business loans.
Types of Business Loan
- Equipment financing is a method of extending capital to businesses to acquire equipment.
- It is a common tool used by companies to recover their business program as it helps in improving cash flow and working capital.
- Equipment financing typically involves a lender giving business finance that is secured by a part of the equipment.
- It is useful for those businesses that are struggling with their traditional funding.
Online seller finance
- As online selling is one of the types of business loan which is growing exponentially, there is an omnipresent demand for high liquidity.
- Online seller finance has made loans for business in India, especially for e-commerce merchants.
- B2C & B2B marketplace is ahead of this competition and diversifies into new product categories with the help of these customized credit solutions.
- This Collateral-free business funding ensures you have liquidity in the swiftest manner possible.
- Invoice financing is a way for businesses to borrow money based on the amount due from the customer.
- It helps the businesses in improving
- Cash flow
- Pay employers and suppliers
- Reinvest in operations and growth earlier than they could if they had to wait until the customer paid them.
- The owner pays a percentage of the invoice amount to the lender as a fee for borrowing.
- It can be structured in several ways, most commonly factoring or discounting.
- A Business could use invoice discounting which is similar to invoice factoring except for that business, not the lender.
- With Invoice discounting, the lender advances the business up to 95% of the invoice amount.
- It is a short-term or a line of credit loan made to the company so that it can purchase products or raw material for sale.
- These Products or inventory serve as collateral for the loan if the business does not sell its products and cannot repay the loan.
- Inventory financing is useful for businesses that must pay their suppliers in a shorter period of time.
- It also provides a solution to seasonal fluctuations in cash flow & help in achieving higher sale volume.
Merchant cash Invoice
- The merchant cash invoice is not a loan but it is an advance payment against our business future income.
- The cash advance owner gives you a lump sum, which is to be repaid by using a percentage of your daily credit card receipt.
- It is a better option for those if you have poor credit.
- A merchant cash invoice is a way to finance a small business.
- Merchant cash invoice provides us a quick solution for a common inventory problem and leverage revenue-based collection for new ideas.
Short Term Loan
- A short-term loan is the type of loan which is to be repaid within a year.
- It is very useful for the business if you pay back on time.
- However, it is mainly used for some urgent requirements and to strengthen your financial condition for some days until the situation gets better.
However, choosing the particular types of business loans is also a very important step during the loan application. Before applying, an individual should always keep in mind that it is vital to understand the loan you going for-process, benefits, etc.