Types of Business Loans
Small business loans allow borrowers to use funds to grow their business and make profits. It can be used to meet start up costs, expand business and for capital investments. Business loans are needed to start a company, run an enterprise and purchase a new one. Banks provide this type of loans but they have strict norms. Then there are also other form of lenders and angel investors that provide business loans. The main categories of Business loans are as under:
Unsecured Business Loans: In this type of loan no collateral is offered as security and loans are granted based on one’s credit history and capability to make repayments in time. It may be difficult to get an unsecured loan but then impressive line of credit can also be secured. What matters is credit rating of the business organization and its repayment capability. Once this gets established, financers do not put any restrictions on the amount granted.
Secured Business Loans: In this type of loan, the borrower has to give some kind of guarantee that it is going to repay back the loan in time. This guarantee normally is in the form of collaterals wherein creditors receive some property documents from the borrower as security for the money received. This makes it possible for the lender to get back the amount lent out, just incase, if the borrower defaults. The assets pledged are, however, returned back by the creditor whenever the borrower makes full repayment of loans along with interest. Secured loan provides security to the creditor as they can sell the collateral to regain the amount of money that is loaned.
Trade loans: Trade loans are made available to owners so as to help them start a new entrepreneurship or continue with an existing one. The amount of the loan can range from Rs. 25000 to Rs 100 lakh and it depends upon the age of the customer, his financial standing, repayment capacity and period within which it has to be repaid (tenure).
Professional Loans: As the name goes, this form of loan is meant for self employed professionals like architects, doctors, interior designers, chartered accountants, etc. This type of loan is also unsecured in nature and cannot be given to units that are in manufacturing, trading or processing. This form of loan can vary from Rs 25000 to 25 lakhs keeping into consideration applicant’s age, financial standing, repayment capacity. The tenure of the loan is maximum up-to 5 yrs.
Short term business loan: This form of loan is provided to people who all of a sudden run in a crisis situation and need instant cash. This form of loans have short repayment period and normally the borrower has to pay back within one year span. The loan amount granted is substantial but then since it is provided instantly so the repayment period is kept short.
Intermediate Business Loans: This form of loan has a repayment period of 1 to 3 years. It is given to entrepreneurs who are in need of capital for starting a new business, to buy equipment, for building inventory and for increasing working capital.
Long term business loans: This form of loan is meant for business organizations that are well established. It allows enterprises to increase their fixed assets for business expansion and acquisition. The loan has period of 3 to 5 years within which it has to be returned. This form of funding can be used for start-up businesses, to provide money for construction efforts, for purchasing land or buildings, and to support long term working capital with sufficient funds.