A business loan is an unsecured loan specifically intended for a business purpose. As Business requires an adequate amount of capital to fund their day to day & pay for expansion activity. Companies take out types of business loan to gain the financial assistance they need to start up their new business. A business loan is a debt that the company is obligated to repay according to the term & conditions of the loan contract. Before approaching a lender for a loan, it is necessary for the owner of the business to understand about how loans work & what the lender will want to see the business owner. There are various types of business loan for various purposes.
Types of Business Loan
- Equipment financing
Equipment financing is a method extending capital to businesses for the purpose of acquiring equipment. It is a common tool used by lots & lots of companies to recover their business programme as it helps in improving cash flow as well as working capital. It typically involves a lender giving business finance that is secured by a part of equipment. It is useful for those business that are struggling to 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 loans in India, especially for the e-commerce merchants. B2C & B2B marketplace are ahead of this competition & diversify into new product categories with the help of this customized credit solutions. This Collateral-free business funding ensures you have liquidity in the swiftest manner possible.
- Invoice Financing
Invoice financing is a way for businesses to borrow money based on the amount due from the customer .It helps the businesses in improving their cash flow, pay employers & suppliers, reinvest in operations & growth earlier than they could if they had to wait until customer paid them. Owner pays a percentage of the invoice amount to the lender as a fee for borrowing. It can be structured in a number of 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.
- Inventory Financing
It is a short-term or a line of credit loan made to company so that it can purchase products or raw material for sale. These Product or inventory serve as collateral for the loan if the business does not sell its products & cannot repay the loan. Inventory financing is useful for the businesses that must pay their suppliers in a shorter period of time.It also provides solution to seasonal fluctuations in cash flow & help in achieving higher sale volume.
- Merchant cash Invoice
Merchant cash invoice is not 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 better option for those if you have poor credit. Merchant cash invoice is a way to finance a small business. Merchant cash invoice provides us quick solution for a common inventory problem & 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 because it is mainly used for some urgent requirement & to strengthen your financial condition for some days till situation gets better.
Choosing the particualr types of business loan is also very important step during the loan application. Before applying, an individual should always keep in mind that it is vital to understand about the loan you going for-process, benefits etc.