Business Loan
Purpose: To meet the financial requirements of the business, including the purchase of new plant and machinery, to replace the existing plant and machinery, building infrastructure, expanding the business, etc. required to take the business to a greater level. Also, working capital finance is extended to provide for the day to day operational cost of the business.
Loan amount: The loan limit depends on the project for which the finance is required. The assessment is based on the vision of the business through the projected financial statements for years up to which the repayment is fixed, the profile of the promoters, expected cash flow from the business, and other factors.
Types of Business Loans
Working Capital Finance
- Any businessman who is in the service/manufacturing business or retail/wholesale trading, imports/exports can make use of this facility. This facility is generally opted for when there is a liquidity crunch in the business due to irregular cash flow and funds are required for meeting the day-to-day operational expenses of the business or when there is a sudden increase in the volume of the business. Working Capital finance can be by way of a line of credit, overdraft, packing credit, post-shipment credit or even by way of non-fund based limits like Bank Guarantees and Letter of Credit.
- This facility will be a revolving credit and can be used as and when required. The utilised amount can be replenished by depositing the amount when the cash flow of the business improves. The biggest advantage in this type of finance is that interest is levied only to the extent of the amount utilised and for the period utilised.
- Rate of interest is mainly based on the credit appraisal of the business. The working capital finance will be for a period of 6 to 12 months and will be renewed after an annual review. The prime security for working capital finance will be the stocks and receivables of the firm/Company. Collateral security may also be insisted by way of a mortgage of residential/commercial property. It depends on the lender and the quantum of finance.
Term Loans
- These loans are given mainly for capital investment, which will be of long-term in nature. It could be for building the factory premises, improving the infrastructure, modernisation of the existing structure, etc. The quantum of loan involved in this facility will be high and will be disbursed in a lump-sum. The repayment period also will be longer and can range between 7 years to 20 years. The rate of interest will be based on the profile of the Company, Credit Rating, the quantum and period of the loan.
- The prime security will be the assets created out of the finance and collateral security will be a mortgage of residential/commercial property. To apply for this type of finance, you should have a detailed project ready along with a business charter as to how the loan amount will be utilised.
Invoice Financing
- This is a very lucrative way of arranging finance for a firm/company.
The time gap between raising an invoice and the final payment can be
anywhere between 60 to 90 days. During this time, the firm/company may
face a liquidity crunch and might need funds for the day to day
operations of the business. Banks/financial institutions do provide
finance against such invoices for customers who have a long-standing
relationship and have been availing credit facilities which have been
conducted satisfactorily. Up to 80% of the value of the invoice will be
provided as working capital funds and the remaining 20% will be provided
when the final payment is received. Invoice financing will attract
processing charges and interest as per the guidelines of the lender.
