Business loan – India and its major types

Whether you are a small or medium business owner, you may require funds at some point in time. Draining your savings is not a good idea, as also borrowing from your acquaintances. Apply for a loan amount that you can pay back comfortably. These are specifically designed to meet your business expenses for various purposes. Read on to know about the various types of business loan India that you can avail of in times of need.

Business loans are broadly categorised into different types based on the lender’s terms and their features are as follows:

Business loan against property

This is a secured loan that you can apply for if you have a suitable asset that you can keep as collateral or mortgage with the bank. It can be anything starting from a residential property like a house, apartments, buildings, plot of land, etc, to a commercial property. You can keep an office space, manufacturing unit, shop, showroom, or other forms of commercial property as security. Check with the lender regarding the type of mortgage that he has specified and the loan to value (LTV) that he would provide.

The features of this loan include:

• Disbursal of funds against a collateral

The property that you can keep as security should be owned by you. You may be staying in it if it is a residential property or it can be a vacant property or property that you have leased or given on rent. It would be similar in the case of a commercial property. The rent receipts can provide a guarantee of repayment. The amount of loan that you would get depends on the lender and also on your current financial status.

• Low business loan interest

Usually, these loans come with a low-interest rate as there is a mortgage attached. The risk of non-repayment is low in this case. If you do not repay on time, the lender would claim the property. He has the right to utilise or sell it off or rent it out for recovering the funds.

• Jointly owned property

Even if it is a jointly owned property, you can put it up as collateral. Here, all co-owners including you would be co-applicants of the loan. Note that you cannot keep agricultural land or land that does not have government approval as security.

• Business loans without collateral

These are unsecured business loans that you can avail of even if you do not have any asset or property to keep as collateral. So, it is convenient and the lender may disburse it fast as there would be no inspection of properties, assessment of values, etc. The features of this loan consist of:

• Fast processing

You just have to be eligible as per the lender’s terms and conditions. The advantage is that the value of the loan would not be determined by the value of any property, so less paperwork would be there. You can expect fast disbursal of the amount to your account. Since there is no collateral involved, you do not have to worry about the loss of any property.

• High-interest rate

Since you would not be providing any collateral, this loan comes under the category of high-risk for the lender. So, to minimise the risk, he would fix a high-interest rate. However, you can negotiate with the lender if you have a high personal credit score and proof of high revenues from your business, stable finances, etc.

Business loans are the best way to meet the emergency fund requirements of your business if you have some ownership property to keep as a mortgage. Even if you do not have any assets, you can avail of a loan, based on a good financial status.