Simply put, a loan refers to the lending of money or resources from one individual, organisation, group, etc. to another. A business loan is a loan that is taken in a business setting and for business purposes. Like all loans, it starts with debt and usually ends with the repayment of said debt along with added interest.
Types of Business Loans:
Depending on the setting, there are different types of business loans.
- Start-up loan: This loan is taken when a person wishes to start a new business that may not have the ideal credit history. The borrower’s details, which include their credit and the turnover as it is in the present are taken into account when the loan amount is being considered, along with the tenure and the rate of interest. In addition to this, it is important to submit proof of the existence of the business as well as its registration number.
- Working capital loan: This loan is taken if someone needs assistance in funding an enterprise’s everyday operations. It is also taken to help small businesses. Usually, it is the traders, wholesalers, and retailers who apply for this loan.
- Term loan: This type of loan is generally used to generate capital funding. Small businesses use their assets as collateral and get an established business to back them up. Should they be unable to pay the loan, the big business uses the mortgage to recover their losses.
- Loan against property for SME: This is a loan used mainly by small and medium enterprises. The borrower puts up a litigation-free property as collateral to get this loan.
- Equipment loan: This loan funds the purchase of equipment for a business while simultaneously offering a fair interest rate. The equipment it buys is used as collateral in addition to other assets.
- Invoice financing: This is availed when a small business incurs a notable expenditure at the behest of the client. The business submits an invoice to the client in hopes of receiving some form of reimbursement. However, a significant period does pass when waiting for a reply from them.
- Business loans for women: This loan can be availed for by women entrepreneurs that run small or medium-sized businesses.
- Merchant cash advance: This type of business loan depends on the number of debit card sales that are procured every day.