What are the different types of business loans?
The major types of business financing include:
- Term Loan
- Loan Against Property
- Cash Credit Facility and Overdraft Facility
What is a term loan?
Term loans are a traditional form of business loans. They can be used to finance short to long term business goals. The interest is to be paid for the whole loan amount. The EMIs include both the interest and the principal component. They can have a fixed or a floating interest rate.
What is Loan Against Property?
A loan is offered against the collateral of property. This could be commercial, residential, vacant land or any other premises. The funds can be used for.financing daily operations or business expansion.
What is cash credit facility?
Cash credit loans are given against inventory or invoices. The tenure for this loan is renewed every 12 months. It can be used to fund daily operations. Cash credit loans are granted as overdrafts on the security of the borrower’s stock in trade/ raw materials/ processes. You can secure cash credit facility by pledging your current business assets such as inventory or receivables.
Do business loans require collateral?
Business loans can be secured as well as unsecured. Secured loans require a collateral. This requires evaluation of the assets that is going to be pledged. The processing of secured business loans is time consuming and stringent. However, NBFCs like Bajaj Finserv offer business loans, without collateral, up to amounts as high as Rs. 50 lakh.
What is the eligibility criteria?
The eligibility criteria differ across different financial institutions. One of the eligibility criteria is the business vintage proof. The lenders also gauge your liquidity ratios, to see whether the company has enough cash flow to repay the debt. Different loans such as professional loans, working capital loans, specific business loans for traders, etc. will have different criteria. You are requested to read the documents before applying for loans.
What are the documents required?
Bajaj Finserv requires certain documents for processing your business loan application. These include: -KYC documents -Certificate of business existence -Relevant financial documents
How to Calculate EMIs?
Online calculators are available on the website of several lenders. You can get an idea of what the EMIs would be for different interest rates and tenors. Refer to Bajaj Finserv’s online EMI calculator for business loans.
Do business loans come with a Flexi loan facility?
Yes, with Bajaj Finserv, business loans come with a Flexi loan facility. These loans allow you to borrow only as much as you require. Unlike term loans, you need not borrow the whole approved loan limit. You can borrow just as much as you need, and the interest will be charged only on the utilised amount. For example, if you borrow Rs. 3 lakh from your approved loan limit of Rs. 5 lakh, you will have to pay interest only on Rs. 3 lakh.
Additional Read: How a Bajaj Finserv Flexi Business Loan can help your business grow
The second feature of Flexi business loans is that you can choose to pay only the interest amount as Equated Monthly Instalments (EMIs). This further reduces your EMI burden. You can repay the principal component at the end of the business tenor. For example, term loan EMI for Rs. 5 lakh at 12% and tenor 4 years comes to Rs. 15417. For Flexi business loans, the EMIs as per this scenario stands at Rs. 5000.
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