Most businesses, large or small, require finances to satisfy day-to-day business obligations. The nature of the business also determines the amount of funding needed: is it capital-intensive, and what stage of development is it in terms of genesis, growth, or maturity? Typically, firms require the most funding in their early phases and for future growth.
Typically, business loan terms range from 12 months to five years. Short-term, or unsecured, loans have a tenure of fewer than five years, whereas long-term, or secured, loans have a length of 15 years or more. For start-up loans, the lender determines the payback term for a term loan at the time of the loan application.
Let’s find out in detail about the various business loans and their average term lengths below:
Term loans for businesses are loans for a set period. You can generally use these loans for capital projects such as purchasing new equipment and cars. They can also help upgrade an existing firm by installing computers or upgrading equipment.
However, you should be aware of the hazards of taking these loans. Short-term, medium-term, and long-term business loans are available. These loans differ from other types of credit and funding in that they are made for a set period.
In long-term loans, the borrower must provide collateral in exchange for the loan. You can repay short-term loans within five years or fewer. Long-term loans can have repayment terms of up to 15 years or more and may have lower interest rates than short-term loans. The borrower can also select fixed or variable interest rates when repaying the loan.
Working Capital Loan
These loans are intended to provide working capital for a company’s short-term operating needs rather than long-term assets or investments. Such essentials include payroll, rent, and debt payments. Working capital loans are thus simply corporate debt borrowings used by a company to fund its day-to-day operations. Working capital loans may be required by businesses with circular or seasonal sales to make it through periods of decreased business activity.
They help buy raw materials when demand is high and pay for labour, rent, utilities, and other ongoing costs.
You can repay working capital loans in as few as four months. You can of avail and repay these short-term loans as many times as you want, depending on the rise and fall of liquidity rates in your business.
These loans help you upgrade your business by purchasing the latest machinery and equipment or upgrading the existing ones. A qualified lender in India can provide you with a machinery loan with reasonable interest rates and a flexible payback period. The tenure usually varies from lender to lender but is between one and five years.
The Indian government has launched several credit schemes for individuals, MSMEs, women entrepreneurs, and other entities involved in the commerce, service, and manufacturing sectors. Loans under government schemes are provided by a variety of financial organizations, including private and public sector banks, non-bank financial companies (NBFCs), regional rural banks (RRBs), microfinance institutions (MFIs), small finance banks (SFBs), and others.
Some of the most popular government loan programmes are:
- Mudra Scheme under PMMY: Length of term loan: 12 months to 5 years
- Standup India: The maximum term loan term is seven years
- PSB Loan in 59 Minutes: The maximum term loan length is one year
- MSME Loan Schemes from SIDBI: The maximum term loan length is ten years
The minimum loan amount for all these government schemes is Rs. 10,000. They offer benefits to women entrepreneurs, rural businesses, and new businesses. You can obtain government bank loans for small enterprises by visiting the official website of the government-initiated schemes and applying online or with the bank that offers these schemes.
Point of Sale (POS) Loans
In a point-of-sale (POS) loan, the consumer pays for goods and services purchased from a specific store. Consumers complete a Point of Sale (POS) transaction when they buy goods from a store. After receiving payment, the merchant will provide its customers with a printed receipt for the transaction. As it relates to sales, customer management, inventory, stock, equipment, and employees, POS, often known as a retail management system, is a central component for enterprises. Almost every POS comprises software and hardware components that help shops manage their everyday operations. This sort of loan is also known as a merchant cash advance. The loan amount granted by banks and NBFCs is determined by the amount of business produced by POS terminals.
The availability of a loan is an act of responsibility because the money must be returned. Various loan repayment opportunities are available today, each with its own set of terms and restrictions. These include delayed EMI payments, flexible repayment plans, step-up repayment plans, and loan foreclosure.
Three efficient methods you can implement to pay your business loans on time are:
- When you have a savings account, you can utilise a standing instruction to withdraw whatever EMI you owe to them automatically. The lender can be informed of the date on which the EMI will be withdrawn. You must have cash in your account to ensure that any EMI isn’t missed and that the payback procedure is not interrupted.
- Post-dated cheques for the loan amount are provided to the lender, who will submit them to the bank on the designated date. It is similar to a standing instruction, but instead of withdrawing funds electronically, the cheque must be physically mailed to the borrower’s bank.
- If you do not have an account with your lending bank, you can use an electronic clearing service. The borrower will also authorise the lender to deduct the EMI from your account.
Business owners must select a loan that meets their needs and guarantee that it is repaid on time. To apply for a competitive rate loan or understand more about business or personal loans, visit https://www.piramalfinance.com/personal-loan.