Loan is taking for a purpose. It depends on the individuals or business nature.

Here are some main purposes to avail the Business Loan –

• To expand the business
• To purchase machinery or technology for expansion
• To meet day to day operational expenses of business   
• To change place / location of business
• To purchase material / inventory for business
• To hire talented people for business
• To pay unpaid salaries or wages
• To get the financial support on crisis time
• To maintain the goodwill of business

Please note that in some loans, lender wants to know the use of money. It means Lender monitors where borrower is expensing the loan amount so business owners must make sure to have a clear outline for how the money will be spent.

Type of Business Loan :

Today’s market is very competitive. Everyone wants to grow in their businesses and in every step towards growth need hard work and money. There are various types of Business Loan which is provided by the Banks or Financial Institutions. Types of Business Loan depend on the mode of the business, requirement of the Business and vision of the Business. Entrepreneur should be aware of all these things and he should know when and how much business required funding and for how much tenure also.

In this article we will describe various types of Business Loan which are available in the market today.

• Term Loan :Different types of business have their different type of requirements. Entrepreneur always have their short term goals and long term goals and then he decided that what type of loan required for his business. Similarly lender also provides short term loan and long term loan. We will discuss separately for both the loans. 
• Short Term Loan : This type of loan provided to Small and Medium Enterprises to meet their Operational expenses and for expand their business. Business has to pay this loan amount over a shorter period of time. Short Term Loan offers with smaller amount and short term ranging between 3 months to 18 months.
• Long Term Loan :This type of loan provided to big enterprises for acquisition of long term fixed assets like Machinery, Land, Building, etc. The Long Term Loans offered by the Lenders come with longer tenures and larger loan amounts. Term ranging of this loan between 2 to 10 years.
• Line of Credit Loan :This is one of the best and very popular type of business loan. In this loan, borrower applied for loan and once the loan amount is approved, he can use that amount.  Either he can withdraw all loan amount in one shot or he can withdraw amount as per their business need.  The interest will be charged only on the amount that the borrower has withdrawn and not on the entire amount. For example, borrower requested for 1 Lac and that amount has approved by the lender. Now if borrower need 30,000 and he withdrawn that amount than borrower have to pay interest only on 30,000 not for the total amount.
• Letter of Credit (LC) :A Letter of Credit also known as a Documentary Credit or Letter of Undertaking. Letter of Credit (LC) is type of credit facility wherein the bank guarantees that the seller will receive payment on certain conditions. LC used in International trade where Seller and Buyer are from different country. In simple way, it’s a bank guaranteeing from buyer’s bank to seller for timely payment. If buyer is unable to make payment on the purchase, the bank will cover the outstanding amount.
• Cash Credit Facility :Cash Credit Facility is secured loan as in this loan, lender provides Cash Credit Facility against some securities like raw material, ready stock, receivables, etc. The limits of cash credit are based on the drawing power, which is established after the deduction of margin that is fixed by the lender/bank. The outstanding balance is never more than the drawing power.
• Overdraft : Overdraft facility can be avail by all the businesses if they have current account with the bank. It is a secured loan facility where bank need some collateral. It is depending upon the credit history of business, repayment history, cash flow, relationship with bank and etc. And based on the overdraft limit, business can use this facility as per their need. Interest will be charged only on used amount not the entire limit.
• Working Capital Loan : Working Capital Loan is also secured loan as banks required some collateral against this loan. This loan is provided by banks for specificpurpose. It means this loan cannot be used for any other purposes. Banks monitors on debtors, cash flow, receivables, order book and etc. If bank found any discrepancy against this loan, bank can stop this facility. In this facility also, bank charged interest only on utilized amount.
• Invoice Financing : This is very popular and very quick tool to raise capital. There is always a time difference between raising the invoice and getting full payment from buyer. In this situation, you can contact with banks and can get almost 80-85% payment of invoice amount as a loan and rest of 15-20% amount is due till the time buyer paid in full. The bank will charge all its expenses and processing fees. If that invoice remains unpaid, borrower will be charged on a weekly basis.
• Loan against Property : Lenders provides loan to borrower against collateral of their property. It can be commercial or residential, it can be constructed or vacant land. This is secured loan so interest rate will be lesser and tenure can be long.
• Equipment Financing :This loan is only for manufacturing businesses. This kind of loan is specially provides for purchasing of business equipment which cost is very high and that equipment is generally taken as a collateral.
• Loan against Gold : Loan against Gold also very popular to raise funds for business. Lenders collateral the gold and provide some percentage of loan against gold. Borrower is free to use this loan for any purpose.
• Loan against Shares / Security : Loan can be raised against shares or security, mutual funds or fixed deposits plan, insurance policies. Only those shares, mutual funds, insurance policies approved by the bank policy can be pledged for raising funds.

Documents Required for Appying Business Loan:

Some of the documents needed to apply for a Business Loan are mentioned here:

• Identity Proof like Passport, Driving License, PAN card, Voter’s ID, etc.
• Statement from the bank.
• Latest Income Tax Certificate.
• Audited financials for the past three years.
• Address proof like trade license, electricity bill, ration card, etc.

You should read also The Ways Of Finance For Business

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There are lot of Government schemes also where government providing loan for startup, for extend your business, for purchasing heavy machinery, etc.; and these kinds of loan having very less formalities, very less documentation with lower rate of interest. So it is good to search market, do some analysis and then decide to take the loan because taking loan is easy but it’s difficult to manage.

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