All you need to know about types of small business finance in India

Posted by HeroFincorp on August 26th, 2019

Every small business owner aspires to take the business to new heights. In order to expand the business, you need to have access to funds in the country. There are many banks and financial institutions that offer small business finance. However, before you apply for a loan, you need to understand exactly for what you are applying. There are different types of loans that serve different purposes and you need to choose the right lender and the right type of loan for your business.

Term loans: One of the most common forms of small business finance in India is term loans. There are short term loans, mid term loans and long term loans. The tenure of short term loan will be three years and the tenure for long term loans will extend up to 15 years. The interest rate will vary according to the type of loan you choose. There are secured and unsecured term loans available in the market, in a secured loan, you need to attach an asset for the loan. If you opt for a secured loan, the interest rate will be slightly lower as compared to an unsecured loan. An unsecured loan does not require any sort of hypothecation of the asset.

Overdraft: Overdraft is a form of temporary funding. It means overdrawing from the current account. In an overdraft, you are allowed to withdraw more money from the account than what has been deposited. If the amount is within the limits of the agreement, the interest will be charged at an agreed rate. There will be a higher interest charged if you exceed the limit. The prescribed limit will vary according to the profile of the account holder.

Bill discounting: Through a bill discounting, you can get instant cash on the purchases or credit sales made by using the invoices. You only need to produce the documents that will authenticate the transaction. It is the quickest and the most convenient way of financing the business.

Letter of credit: Letter of credit is used in international transactions that carry large value. The bank will issue a letter of credit for the applicant. The beneficiary will receive the money using the letter of credit. There is a simple and straightforward procedure for the issue of the letter.

In order to apply for small business finance, you need to do some research. Search online to find lenders who will be willing to lend you and will offer lucrative interest rates. If you apply for a loan with a lender where you already have an account, you will be able to benefit from the special offers or low interest rates. Compare the interest rates offered by different lenders and choose the one that suits your needs. Estimate the requirement of funds for your business and then make a loan application. The entire process of application is hassle free and transparent. You will only have to fill up the form and submit necessary documents for the loan process.