What are The Different Types of Business Loan in India?

By April 30, 2019
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What if you are done with working your butt off in a corporate sector and want to start up your own business? Okay, let’s say you are a travel freak! Suits you right to open a travel agency. For that, you are going to need some references for hotels, some transportation and tourist guides as well. Let’s say that you are going to start from building your brand’s online presence, that too needs resources.  

The moral of the story is that, no matter how big or small your business is, it is always going to need some funds. If you have your savings, then it is okay, but always remember that starting a business is like stepping into the ocean, and no amount of investment is enough. Therefore, it is important that you keep some first-hand knowledge about types of business loans in India.

However, first of all, you will have to determine what is the nature of your company. Because doing that would make it very easy to calculate your expenses. For example, you want to start a cosmetics shop. For that, you need to have a brick and mortar store, a website for online shopping, cosmetic products, drop shipping agency, and many other things.  

Once you have calculated your expanse, it becomes very easy for you to decide how much savings you have of your own, and how much you need as a business loan. This important step has to be taken to avail loan. This calculation also affects the decision that what kind of loan do you want and how are you going to avail for it.  

Now let us see some of the business loans in India that small businesses could avail.  

Types of Business Loans 

Business loans or commercial loans are mainly divided into 2 parts. One is professional loans and another one is trade loan. The professional loan can be taken by any professional like doctors, engineers, lawyers and many others who are involved in a consultancy or want to start their own practice.  

The demand of professional loan has actually decreased with the advent of online business. It is because many people can now simply open a website and start gaining some audience. All they have to do is just hire a digital marketing agency to increase their site traffic. This is because they want to see their website in the first page of the search results page. There are othe loans like secured and unsecured loans, different short loan and long time 

Proffesional Loans 

Professional loans somewhat may vary from bank to bank as it depends on how much they can extend the loan amount. It is based on the customer’s relationship with the bank.  

Say suppose you are a Bonafide customer of a bank for 10 years, and you are a delivery boy. If you want to open a drop shipping business of your own, then you may get some help from that bank. However, your loan will only get approved if your credit history is good.  

Documents Needed for Prfessional Loan: 

  • Your business expansion plan is mandatory. Your bank is the investor. If you have a business plan which looks to be profitable for them. Then only they will approve of your loan. Bank agencies mostly see whether you are able to pay back their money or not, and for that you need to present a solid pitch desk presentation on your business.  
  • You also need to show them a detailed plan of your expenditure. That means, how are you going to invest the business loan money into your business plans. So that you can convince them that the money you are taking is not for nothing.  
  • If your company is already registered then you need to show the documents to the bank. Such as certification of incorporation, address proof of the business, attested PAN card photocopy, documents of the brick and mortar store owners and many other for their inquiry.  
  • Before inquiring about your credit history, they are also likely to go through your IT returns and balance sheet of the previous 2 years.  

Professional loan is much simpler than trade loans, and there are chances that you can even use your influence and relationship with your bank to get the most out of it. However, trade loans need bigger arrangements, especially for business loan in India.  

Trade Loans 

Trade loans or business loan composes of those sectors which are either Partnerships, Private Limited Companies or Sole Proprietorships. Trade loan is much complex and its three main branches are Overdraft, Working Capital Loan, and Term Loan.  

First, let us see what overdraft actually is and how does it work.  

OverDraft 

Overdraft loans are mostly given on the basis of some collateral such as an insurance policy, or a fixed deposit, or any other savings. Here also, the bank mainly sees the cash flow of your business, credit history, the tenure of your relationship with the bank and many other things. 

Based on this, the promoter fixes an amount of overdraft limit. The company mainly works on this limit, and the repayment is also set on how much of the overdraft limit have been used.  

Working Captial Loan 

This type of business loan generally contains less amount of interest than overdrafts as they are given as regular working capital. This approval of working capital loan is also set against collateral. Here the loan amount can only be used for the business purpose only.  

In this type of business loan in India, the bank mainly takes full control of the order book of the business, ranging from their cash flow, inventory and other aspects. In this way the bank is more secured.  

It is because the chances of default are lessened and that makes working capital loan one of the easiest available loan in the country. However, it also somehow seizes in independence of the company and its owner.  

Term Loan 

Last but not the least is term loan. Terms loans are not solely for business purposes. They can also be availed for personal purposes as well. This type is loan is solely given on the basis of your personal credit history, and you will have to pay normal EMI amount for the given period.  

You can also avail term loan in foreign currency. But for that you will have to avail for Foreign Term loan. In this case, the loan amount is calculated in USD. 

So these are the various types of business loans in India, that you can avail to start a business or to expand your business. Please do follow the terms and conditions before youo avail for the loan.  

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