We understand that securing the necessary funds to sustain and grow your business can be a pressing concern. Whether you’re experiencing a cash flow gap, need to invest in crucial equipment, or have ambitious plans for expansion, the financial aspect can often be the bottleneck.
Amidst these challenges, exploring viable financing options can provide the breakthrough you need. One such powerful solution is a business loan – but the one, which matches your requirements. A business loan offers the capital infusion necessary to address immediate needs, whether it’s bridging gaps in cash flow, acquiring essential equipment, or fuelling strategic expansion initiatives.
With various types of business loans available in the market, tailored to different business needs and circumstances, you have the flexibility to choose an option that aligns with your specific goals. In case you are still stuck with a few particular options, hold on. We want to introduce you to the top 14 types of business loans that will help you arrange funds for your business.
Business Term Loans:
Business term loans can be a reliable companion for your long-term financial journey. With fixed repayment periods and stable interest rates, they provide a lump sum of capital anything between lakhs to few crores, ensuring your business has the financial support needed for significant investments, expansions, or equipment purchases.
- Expected Interest Rate: 12.75% to 44% per annum (can be higher or lower)
- Tenure: 12 – 36 months (depending on the loan amount and purpose)
- Eligibility: Varies by lender, but generally requires good credit history, a solid business plan, and collateral (for secured loans),
SBA (Small Business Administration) Loans:
SBA loans are like a helping hand from the government for small businesses. Backed by the Small Business Administration in US, these loans offer favourable terms and lower down payments, making them a great choice for entrepreneurs. In India, you can find such loans on the name of Small Business Loan if you are aiming for an amount up to Rs 25 Lakhs.
- Expected Interest Rate: Typically lower than traditional term loans (often below prime rate) due to government guarantee
- Tenure: 1 to 5 years, loan amount depends on the stage of a business.
- Eligibility: Open to for-profit businesses in the US, meeting SBA size standards and specific program requirements
Micro Loans:
Microloans are small-scale financial loans provided to individuals, entrepreneurs, or small businesses who typically do not have access to traditional banking services. With a loan amount of Rs 10,000 to 1 Lakh, these loans are designed to help them start or expand their ventures, cover immediate financial needs, or invest in income-generating activities. Microloans play a crucial role in supporting economic development by empowering individuals and communities to become self-sustainable through small, manageable financial assistance.
- Expected Interest Rate: Often higher than traditional loans, average 20% p.a. or more
- Tenure: Typically shorter, ranging from 6 months to 3 years
- Eligibility: Primarily targeted at startups and very small businesses, with simpler eligibility requirements than traditional loans
Working Capital Loans:
Working capital loans act as a financial cushion for your day-to-day business operations. Similar to having cash readily available, these loans ensure you can cover daily expenses like payroll and bills. They’re your safety net, ensuring smooth operations even during financial ebbs and flows. Depending on your business, working capital loans can be availed for Rs 50 Lakh and higher requirements.
- Expected Interest Rate: Vary widely depending on factors like creditworthiness and loan amount, but generally can range from 10% to 36% p.a.
- Tenure: Typically shorter-term, ranging from a few months to a year, or 6-48 months.
- Eligibility: Requires good business financials and a demonstrated need for short-term working capital.
Business Overdraft:
A business overdraft is a financial arrangement provided by a bank to a business entity. It allows the business to withdraw more funds from its bank account than the available balance, up to a pre-approved limit. This serves as a flexible and convenient way for businesses to manage temporary cash flow challenges or unexpected expenses. It’s important to note that a business overdraft is a short-term financing option, and businesses are usually charged interest on the overdrawn amount.
- Expected Interest Rate: Typically charged daily on the outstanding balance, can go up to 12% to 15% per annum.
- Tenure: You can choose to repay the amount in 12 to 60 months EMI.
- Eligibility: Requires a good business banking relationship and may require minimum account balance or collateral
Business Credit Cards:
Business credit cards are financial multitool for everyday expenses. Offering a convenient way to manage purchases, this card-based business loan come with benefits like rewards and expense tracking. Whether it’s buying supplies or booking a business trip, these cards provide flexibility and a clear record of your business transactions.
- Expected Interest Rate: Often higher than other loan options, with interest ranging from 15% to 25% p.a. or more.
- Tenure: requiring minimum monthly payments, or you can convert your loan amount into flexible EMI options of up to 48 months.
- Eligibility: Requires good personal and business credit history, and may have spending limits
Equipment Loans:
Equipment loans are financial arrangements where a lender provides funds to an individual or business specifically for the purpose of acquiring equipment. The borrower then repays the loan amount over an agreed-upon period, usually with interest. This type of financing allows individuals or businesses to acquire necessary equipment, such as machinery, vehicles, or technology, without having to pay the full cost upfront.
- Expected Interest Rate: Varies depending on the equipment type, loan amount, and borrower creditworthiness, typically ranging from prime rate to 7% & above.
- Tenure: 2 – 7 years, aligning with the equipment’s useful life.
- Eligibility: Requires a solid business plan demonstrating the equipment’s necessity, good credit history, and sometimes a down payment or collateral (especially for expensive equipment).
Startup Loans:
Startup loans are like seeds for your business garden. Perfect for new ventures, these loans provide the initial capital needed to kickstart your business journey. Whether you’re setting up shop, developing a prototype, or creating a solid foundation, startup loans offers a loan amount between Rs 10 lakhs to Rs 5 crores to turn your entrepreneurial dreams into reality.
- Expected Interest Rate: Generally higher than traditional term loans due to the inherent risk of new businesses, ranging from 12.75% – 44% p.a. or more.
- Tenure: Shorter than regular business loans, typically 1 – 5 years, but can be extended.
- Eligibility: May have less stringent credit score requirements but often look for strong business plans, experienced founders, and potential for rapid growth.
Peer-to-Peer Loans:
Imagine a financial marketplace where individuals come together to support each other — that’s peer-to-peer lending. These loans connect you directly with individuals willing to invest in your business. It’s a more personal approach, offering diverse funding options beyond traditional banks. With flexible terms and often quicker processes, peer-to-peer loans can be a collaborative solution for your financial needs.
- Expected Interest Rate: Can vary widely depending on the borrower’s creditworthiness and risk profile, potentially ranging from single digits to 20% or higher.
- Tenure: Typically shorter-term, ranging from a few months to 5 years.
- Eligibility: Less stringent credit score requirements compared to traditional banks, but may look for good personal credit history and strong business plans.
Peer-to-Business loans:
Peer-to-business loans, similar to peer-to-peer lending, bring individuals and businesses together in a financial partnership. In this arrangement, individual investors become the financial backbone for your business. It’s a direct connection that allows you to secure funds without the traditional banking bureaucracy. With shared goals and personalized agreements, peer-to-business loans provide a dynamic alternative to conventional financing.
- Expected Interest Rate: Similar to P2P loans, can vary widely based on risk assessment, potentially ranging from 5% to 20% or more.
- Tenure: Can range from a few months to several years, depending on the platform and loan purpose.
- Eligibility: May require good business financials, a strong credit history, and a solid business plan demonstrating potential for success.
Convertible Loans:
Convertible loans are a type of financial arrangement where a borrower receives a loan with the option to convert the debt into equity (ownership) in the future, typically in the form of company shares. This means that the lender has the choice to convert their loan into an ownership stake in the company instead of being repaid in cash. Convertible loans are commonly used in startup financing, allowing investors to potentially benefit from the company’s growth by converting their debt into ownership if the company performs well.
- Expected Interest Rate: Typically low or even zero interest rate, but investors receive the right to convert the loan into equity (ownership) in the company at a later date.
- Tenure: Usually has a maturity date, often 1 – 5 years, where the company either repays the loan or the investors convert it to equity.
- Eligibility: Primarily for startups with high growth potential, requiring a strong business plan and the ability to attract investors.
Business Loans for Women:
Business loans for women are like tailored financial garments designed to fit the unique needs of female entrepreneurs. Recognizing the diverse challenges women face in business, these loans offer specialized support. Whether it’s launching a startup, expanding operations, or strengthening a business, these loans empower women to navigate the business landscape with confidence and financial backing.
- Expected Interest Rate: Often lower than traditional business loans due to government initiatives and programs specifically supporting women entrepreneurs. Rates can vary depending on the program and lender.
- Tenure: Similar to general business loans, ranging from a few months to several years depending on the loan purpose and program.
- Eligibility: Requires a viable business plan, good credit history, and may have specific criteria related to ownership or leadership by women.
B2B (Business-to-Business) Loan:
B2B loans are the financial handshake between businesses, creating a seamless partnership. Like a trusted ally, these loans facilitate one business supporting another. Whether it’s managing cash flow, fulfilling large orders, or investing in collaboration, B2B loans foster growth by strengthening the ties within the business community.
- Expected Interest Rate: Can vary depending on the creditworthiness of both businesses involved, typically ranging from prime rate to a few points above.
- Tenure: Flexible terms depending on the agreement between the businesses, ranging from short-term financing for specific transactions to longer-term financing for ongoing partnerships.
- Eligibility: Requires good business credit history for both parties involved, a demonstrated need for the loan, and potentially collateral (depending on the lender and agreement).
Personal Loan for Business:
A personal loan for business is a financial arrangement where an individual borrows money for the specific purpose of funding their business needs. This type of loan is obtained based on the borrower’s personal creditworthiness and financial history. While the funds can be utilized for various business-related expenses, the responsibility for repayment rests with the individual borrower, not the business entity. It’s a common option for small business owners or entrepreneurs who may not have established business credit or collateral but need financial support for their business ventures.
- Expected Range: 10.50% – 24% per annum (p.a.) This can vary significantly depending on several factors
- Tenure: Typical Range 1 – 5 years (sometimes up to 7 years for larger loans)
- Minimum Age: Typically 18 – 21 years (may vary by lender)
- Maximum Age: Generally up to 60 – 65 years (may vary by lender)
- Employment Status: Salaried individuals, self-employed professionals (with proof of income)
- Minimum Income: Varies by lender and city, but typically requires a minimum monthly salary to qualify.
- Credit Score: A good credit score (ideally above 750) is crucial for approval and securing lower interest rates.
The diverse landscape of business loans provides entrepreneurs and business owners with a myriad of options to secure the necessary funding for their ventures. Whether seeking startup capital, expansion funds, or operational support, the 14 types of business loans outlined offer a range of choices tailored to different business needs.
