Business Loan Types In India

Business Loan Types In India

Business Loan and Their Types

Business loans could be classified into different types depending on the application of funds.  The different types of business loan are based on the application of the loan.

The different types of business loans are:

Term Loan

Term loans are the standard kind of loan that could be for both personal and business purposes. A term loan is a kind of business loan given for the acquisition of long-term fixed resources like machinery, building or land. Term loans have a fixed settlement schedule and an interest rate that is either fixed or floating. The repayment for term loan might be due monthly or quarterly. The normal period for repayment of a term loan in India is anywhere amid 2 years to 10 years.

The kinds of asset financed by term loan are land and building, building construction, infrastructure creation, renovation, purchase of equipment, machinery, vehicles.

The margin Requirement is a minimum margin of 15 – 25% might be applicable. In other words, the quantum of the loan would be restricted to 85–75% of the entire expenditure.

The term loans could typically be sanctioned with a period of 2–10 years. It is prescribed that organizations get sanction for a longer tenure.

Loan against Property

A loan against property rose through giving residential or commercial or vacant land as collateral security towards the bank. The finances raised by method for the loan against property could be utilized by the business for many reasons including promoting, research, business development, staff compensation, starting another business, working capital necessity, capital asset prerequisite, purchasing land, and so on., For the most part, there are no confinements on the application of funds – sanctioned as a loan against property. Subsequently, the funds could be utilized for any reason.

The assets that could be used for raising a loan against property are any residential or commercial or vacant land property. The tenure is 3 to 15 years based on the profile of the borrower.

Gold Loan

This sort of loan could be availed against things like gold ornaments, gold coins, and gold jewelry. If there is a case of a Gold Loan, an individual get the sum quickly in exchange for their gold deposits. An individual could borrow a maximum amount of up to Rs.20 lakh with Gold Loans in India. The term of the loan is decided by the lender on the basis of the individual’s profile. It could range between 12 months and 30 months.

Loan against Shares or Financial Securities

An individual could avail loans for their business against the financial securities like mutual fund units, demat shares, FMP (Fixed Maturity Plans), ETF (Exchange Traded Funds), savings bonds, and insurance policies. The finances that an individual raise by pledging the financial securities or shares could be used to finance their business prerequisites. Notwithstanding, all mutual funds as well as shares can't be pledged. Insurance policies, mutual fund units, and shares that are approved under the policy of the bank could be utilized to raise finances.

The term of the sanctioned loan expires every year. Thus, it needs to be renewed after the 12-month period. This period is calculated from the date on which the loan is approved or sanctioned to the date on which the 12th month falls.

Letter of Credit (LC) Facility

These are loans that are allowed as overdrafts on stock security in trade, raw materials, as well as the process. The Cash Credit Facility is secured through the pledging of the association's present assets (inventory and receivables). The limits of cash credit depend on the drawing power, which is set up after the deduction of margin that is fixed by the lender or bank overstocks. The outstanding balance is never more than the drawing power.

The term of the sanctioned loan expires every year. Thus, it needs to be renewed after the 12-month period. This period is calculated from the date on which the loan is approved or sanctioned to the date on which the 12th month falls.

Bank Guarantee

Bank Guarantee is the word given to an individual (the debtor) by their bank that all the liabilities would be dealt with if an individual fails towards fulfilling all the contractual duties. The kinds of Bank Guarantee are:

  • Bid Bond Guarantee.
  • Performance Guarantee.
  • Advance Payment Guarantee.
  • Foreign Bank Guarantee.
  • Financial Guarantee.
  • Deferred Payment Guarantee.
  • The tenure depends on the guarantee requirement.

We at eStartIndia provide meticulous assist our clients to correctly apply for business loans as per the Laws.

eStartIndia is the professional tech-based online and legal services which help the clients to simplify the procedures of business loans and any additional legal compliances and services related to the business in India. Get a free Consultation service for any registration with Our Top skilled Experts. Visit our website www.estartIndia.com


eStartIndia Team

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