Types of business loans, which one is right for you?

Posted by Saloni Nair on January 29th, 2019

When it comes to business loans, the common perception is restrained to the ones that adhere to traditional norms of approaching a bank, filling up forms, submitting collateral or documents, negotiating loan amount and interest then finally getting the loan disbursed. However, the funding industry has improved leaps and bounds over the past few decades and now business owners have the freedom to customize their loan settings or choose the type of business loan that suits their need the best.  For example, if you are running low on working capital, filing for a term loan would be redundant; instead, you can choose to apply for a short term or working capital loan to meet the daily demands of operations.

When applying for a business loan, the first essential step states that you should choose the one that is right for you.

Here is a list of different types of loans, their advantages, and their disadvantages.

• Bank term loans.
• Bank lines of credit.
• Equipment loans.
• Invoice financing.
• Purchase order financing.
• Short-term loans
• Unsecured Business Funding
• Merchant cash advances.

Best Loan options for already established companies –

Bank term loans –

These are the traditional types of Business Loan in India where you borrow money up front and then pay back the loan in monthly installments along with its interest over a period of time. Such loans are harder to obtain for new companies or companies with bad credit score.

Bank lines of credit –

In this type of loan, the bank lends you a specific amount of money that you can draw whenever needed, the line of credit can be revolving or fixed. Your credit will reset after you pay your balance when opting for the revolving type.

Best Loan options for Newer Businesses –

Equipment loans –

This type of loan is the best fit when you want to buy vehicles or equipment for the business but do not have enough capital, you can apply for a loan to buy or lease equipment where the equipment in question will be your collateral.

Invoice Financing –

Invoice financing is a great option for B2B types of business where you use your outstanding invoices to secure a loan from a lender, the lender will pay a percentage of your outstanding invoice amount for you to run your business while both waiting for the customer to pay back for recovery.

Purchase Order Financing –

This type of loan is similar to invoice financing but instead, here a purchase order secures a loan, this type of loan is useful for newer businesses who get an influx of orders but lack the means to fulfill them.

Best loans for quick capital –

Short term loans –

Short term loans can be secured fast and the eligibility criteria for such loans are relaxed. Such loans are expected to be paid back on a daily or weekly basis and can range on from 3 to 18 months. Short term loans can be obtained to pay off daily expenses and can be considered a source of working capital.

Merchant cash advances –

In merchant cash advances, a lender lends you an advance and purchases a percentage of your daily credit card sales. The loan is then paid off with the help of your company’s daily credit card sales