Business finance may seem tricky at times. Especially in a dynamic environment like today, as a business owner, you may often find yourself wondering about the best possible way to fund a particular business need. Business needs can vary between purchasing assets such as land or leasing a factory or shop or buying new machinery, working capital requirements, or basic operating expenses such as overheads and salaries. Here are ten different types of unsecured business loan available for entrepreneurs in India.
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One of the most common types of business finance is a term loan. The loan could be secured or unsecured. The amount available depends on the business’s credit history. A term loan is taken for a specific purpose, generally for capital expenditure.
A start-up loan is for new business ventures. Applicants for such loans may not have an excellent credit history on their company due to a lack of business vintage. The current turnover figures and other financials are also considered to decide the loan amount, tenure, and interest rate applicable.
Working Capital Loan
Working capital loans is a type of unsecured business loan taken to overcome the shortage of cash to operate a business on a day-to-day basis. It generates a balance in the cash flow necessary to run a business. This loan is also helpful to deal with a shortfall of cash during the off-season or meet demand during a peak season. Most eligible applicants are service providers, manufacturers, wholesalers, retailers or traders engaged in exports and imports.
Invoice financing is also known as invoice discounting or invoice factoring. This type of funding is primarily for small businesses that encounter a time lag between raising invoices and receiving payment from the clients. The financial institution provides funds against the amount raised in the invoice.
It is the manufacturing businesses that usually opt for equipment financing or machinery loan. Manufacturing units require costly equipment for the operation of their business. And to purchase the machines, out of all the types of business loans, equipment financing is the most preferred one.
This is because machinery loans are specific in nature, wherein the equipment in question is taken as collateral along with some other security. The interest rates could be lower than those charged on term deposits.
Business Loan for Women
Some of the financial institutions have special schemes on an unsecured business loan for women entrepreneurs. Even the government of India has initiatives in place to encourage women to establish small to medium-sized businesses.
Merchant Cash Advance
Here, the financial institution provides an advance of capital on a portion of daily debit card sales or credit. The borrower has to repay then the advance with a part of the daily credit sales. The borrower must ensure that they have enough cash flow to manage the payments. The advantage of a merchant cash advance is that the person has to pay as per the daily sales. So, if the business is slow, the amount to return is also low, and when the company is doing well, one can repay more.
It is advisable to select a business loan based on your business profile and requirement. The above-provided information will help you as a business owner decide the type of financing best suited for your venture. Oxyzo offers unsecured business loan of up to two crores for businesses to manage their working capital requirements.