Business Loan

Business Loan

Every business needs constant capital to ensure expansion and long-term sustainability. However, during a cash crunch, business owners seek external funding. Some entrepreneurs offer company equity to raise external funds, while others prefer business loans. These loans are credit products that do not require pledging of any asset, equity or otherwise, to raise capital.

What Is A Business Loan?

The business loan meaning is a loan product offered to business owners who have a running company but require external funds for operations. The investment cover expenses such as employee salaries, rent, buying equipment, or expanding the business in other cities.

Lenders analyze the business owner’s creditworthiness through factors such as credit score and business turnover. However, entrepreneurs or business owners are legally bound to use the loan amount only to cover business expenses and not use the loan amount to cover personal expenditures.

Repayment is also a factor in the business loan definition, as the lenders charge interest on the principal amount the borrower must repay in full within the loan tenure.

Types Of Business Loans                                                       

No business has a similar capital need as they belong to multiple industries and sectors. Lenders ensure that they effectively cater to the capital needs of every type of business through specialised business loans. Here are some of the most common business loans available to business owners in India.

• Term Business Loans:

They are straightforward, short-term loans without additional benefits. Such loans have a short loan tenure of 1-5 years. These loans require the borrower to mention the purpose of the loan, and the amount sanctioned is based on the business credit history.

• Working Capital Loans:

Similar to term loans, working capital business loans are also short-term and come with a tenure of 1-5 years. However, business owners avail of such loans to fulfill short-term and current liabilities such as daily or approaching expenses such as rent or employee salaries.

• Commercial Business Loans:

Commercial business loans cater to the capital needs of businesses with high turnover. These loans offer immediate capital up to Rs 50 lakh with a 3-5-year tenure. The loan is for enterprises that have been at least running for a year and are profitable.

• Startup Loans:

As startups have become widely popular in India, lenders offer startup loans to entrepreneurs who want to expand their current businesses. These loans do not require pledging any valuable asset as collateral and offer repayment flexibility to budding entrepreneurs.