Every business needs are different from the other. This also means that various options can be available to you when you are looking to raise debt. List of a few types of loans that you can consider when you are looking for money. The list is not all exhaustive, but it should give you a fair idea about the choices.

Working capital: A working capital loan is the one taken to overcome the short-term shortage of cash. It is also generally used when the cash in the business is not sufficient to take care of the company’s day-to-day operations. However, a working capital loan is a great way to overcome the seasonal shortfall of cash, irregular cash flow, or to cater to a sudden spurt in business. A manufacturer, service provider, retailer/wholesaler, or trader engaged in imports or exports can apply for working capital loans.

Working capital loans are generally in the range of 6-12 months, and interest rates depend on the credit assessment of the firm but can depend anywhere between 12-16%. Banks generally ask for collateral, but new-age financial companies have been known to provide collateral-free loans. Collateral can be residential, commercial, industrial property, or even shares, stock, book debts and gold. Credit facility under a working capital loan is generally around Rs 25 lakh. One can expect processing and renewal fees to be associated with such loans.

There are also some types of working capital loans that include a business line of credit, cash credit or Overdraft, Packing Credit and Post Shipment Finance. However, other working capital loans are primarily for the export community, like the Letter of Credit (LC). Still, the RBI has been recently banned from Letter of Undertaking.

And, on the other hand, a line of credit is trendy where a business has a certain amount of earmarked fundsthat can easily be tapped in a revolving manner.

It pretty much works like a credit card where you can have a certain sum of money available. You also have the chance to utilise it in tranches and repay it back within the stipulated time after you are done paying the interest. However, the interest rate on the line of credit is lower. Still, it can also go up in case you fail to repay within a stipulated time.

Term loan: Standard loans allow you to easily apply for credit for a specific purpose and get a lump sum amount. It is considered long-term in nature which is often utilized for capital expenditure. The tenure is fixed, and the amount of loan which is available is generally higher. It also depends on the business’s credit profile, and the rate of interest can be lower. However, the lenders prefer term loans to be backed up by the collateral. Still, in some cases, it can be unsecured in nature.

The term loan can also range between 5 to 20 years and have fixed or variable interest rates. Most credits will appear in your books of accounts as debt. You will need to show why you want the loan and your financial projections and repayment capability.

Equipment financing: These types of loans are predominantly for only manufacturing businesses. The types of equipment can be costly, but they can also be crucial for the operation and expansion of a business. To purchase equipment majority of the financial institutions have specialised loan products to meet this need and tend to be at the upper limit of Rs 25 crore.

However, some financial institutions have equipment financing products for as high as Rs 100 crore. And, the tenure for such loans is fixed in the range of 4-5 years. The interest rates can also be lowered than the term deposits. The equipment is generally taken as collateral, along with some additional security.

Most financial institutions fund that offers manufacturing equipment loans, but at the same time in STFC  have specialised products around construction equipment loans. In IT, office equipment and healthcare equipment loans are also provided by banks.

Invoice financing: It is a powerful tool to raise capital for invoice discounting and financing. This provides an excellent way for small businesses to find working capital. There is often a time lag between when a business raises an invoice and finally gets paid. However, you can approach a financial institution to provide you with a loan against the invoice in such a situation. About 80% of the invoice amount is provided as a loan. The remaining 15% becomes due when the invoice is paid in full by the customer. The lender will deduct the processing fee and the interest, which is generally very low, from this amount.

Stand Up India: This scheme targets entrepreneurs from the Scheduled Caste (SC) or Scheduled Tribe (ST) Woman borrower to set up a venture that is not meant for enterprises and has already started operations. However, in non-individual enterprises, at least 51% of the shareholding and controlling stake should be held by either an SC/ST or a Woman entrepreneur.

A financial institution can provide collateral of a Credit Guarantee backed loan. It can be anything from a commercial vehicle loan to an office equipment loan. However, loans ranging from Rs 10 lakh to Rs 1 crore are available under this scheme.

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