Before directly jumping on to which are the various types of business loans offered in the market and which business loan is the best option, it is vital to first assess your business needs. Below mentioned are the practical questions that you need to ask yourself as a business entrepreneur to have clear goals before you decide on the best business loan for your firm.
- What are the business requirements?
- For what does my business need money?
- How long will I be able to repay it?
- Business vintage vis-a-vis loan eligibility criteria?
- What is the position of the business in terms of availing the funding?
- What is personal and business creditability?
- Do I have any collateral to hypothecate?
- Are there any previous or outstanding business loans to complete?
Once you have an answer to each of the above-mentioned questions, you can then go on to consider the lenders and the best MSME loan that are available in the market and then strategically decide as to which one suits your business the best.
Types of business loans
With various business loan providers increasing in the market, there are a number of business loans as well that are emerging from which you can choose. Based on your requirement, you can choose the best loan that is suitable for your business.
Working capital loans
This type of loan is typically a small business loan to solve your short-term financial needs. The firms in need of funds can run their operations and fulfil their requirement using a working capital loan.
This type of funding is available from both- banks and NBFCs like Ziploan. The benefit of a working capital loan is it helps in maintaining the day to day operations and help with the immediate cash flow required to run the business smoothly.
Banks and NBFCs also offer machinery loans. Equipment loans provide financial help to firms for investment in equipment, machines, tools, etc. Instead of opting for a large business loan, you can simply buy equipment by only making a small monthly loan repayment. Machinery loan also helps in providing the cash flow as there it doesn’t ask to make any down payment. Besides, you get to avail tax write-off advantages too.
Once the business is established, every business entrepreneur wishes to expand his/her business. To move ahead with this, funding is an essential capital investment. Even after running the business for a couple of years, you might not have enough cash flow and that is where the need for a capital loan comes into the picture. So, you can easily apply and avail a capital loan to meet the financial requirements of the firm.
Line of credit
A line of credit loan is similar to a working capital loan, which can be availed in order to meet the day-to-day cash flow needs of an organization. This loan is again to meet small business requirements.
Additionally, this type of loan is availed for a small tenure, like 90 days. You can take the line of credit and repay it in easy installments along with interest. These are mainly unsecured business loan and you don’t need to provide hypothecate collateral. Moreover, one can build the CIBIL score with a line of credit simply by paying the EMIs on time.
Professional practice loans
Professional practice loans are curated mainly for professionals, such as firms that deal in healthcare, legal, accounting, insurance, architecture, and engineering. This loan is mainly used for buying new equipment, renovating the office space, etc.
Invoice Factoring is a loan type where you receive the cash in advance from the lending institution in exchange for the outstanding invoices. Once the invoices are been collected by the lending institution, the owner receives the money along with the fee.
Lastly, to avail of any business loan, it is important for the applicant/borrower to keep the business loan documents handy and look for the one that best suits his/her business requirements.