The 4 Types of Business Loans Explained

A working capital loan is designed to help you meet short-term operating requirements. You may need working capital when customer payments are delayed, inventory costs rise, or you have to pay suppliers and employees before receiving revenue.

For example, if you manufacture school uniforms, a rise in the cost of cotton-mix yarn may increase your raw-material expenses. If your available working capital is insufficient, production could slow down and affect your ability to fulfil orders. A working capital loan may help you purchase the required raw materials and keep operations running.

You may use working capital funding for business expenses such as:

• Purchasing raw materials and inventory.
• Paying suppliers and vendors.
• Meeting salary, rent, utility, and other operating expenses.
• Managing temporary cash flow gaps caused by delayed receivables or seasonal demand.

This type of funding may help you avoid selling productive business assets simply to meet immediate expenses. However, assess the cost of borrowing and the expected timing of customer receipts so that you can repay the loan without creating another cash flow gap.

Read more about working capital and how it supports your day-to-day business requirements.

A machinery loan is designed to finance equipment and machinery required for your business. Depending on the lender and product terms, the funding may cover the purchase, lease, upgrade, repair, transportation, or installation of machinery. It may also support training employees to operate or maintain specialised equipment.

For example, a school uniform manufacturer may need sewing machines, overlock machines, industrial pressing irons, cutting tables, or other equipment to fulfil a large order. Machinery financing can help the business acquire the equipment needed to increase production capacity and improve productivity.

You may consider machinery financing when you need to:

Purchase new machinery to increase production.

Upgrade existing equipment to improve efficiency or product quality.

Repair or transport machinery required for ongoing operations.

Install specialised equipment or train employees to use it.

Before borrowing, compare the equipment cost with its expected useful life, maintenance expenses, and likely contribution to revenue or productivity. Also check whether the machinery itself must be offered as security, as collateral requirements vary across financing products.

A business term loan provides a lump sum that you repay over an agreed tenure through scheduled instalments. It may help you meet planned expenses, manage supplier payments, fund distribution costs, or support other business requirements.

For example, if your customers take longer to pay their invoices, you may need funds to pay textile or equipment suppliers on time. You may also need funding to meet distribution costs or employee payments during a period of lower sales. A term loan can provide a defined amount upfront, allowing you to plan the expenditure and repayment schedule.

Business term loans may be secured or unsecured, depending on the lender and product. Bajaj Finance Business Loan is an unsecured facility, subject to eligibility and applicable terms, so you do not need to pledge personal or business assets as collateral.

A term loan may suit you when:

• You have a clearly defined funding requirement.
• You need the full loan amount upfront for a planned expense.
• You prefer a structured repayment schedule.
• Your projected cash flow can support the agreed instalments throughout the tenure.

Estimate your instalments before applying and check whether the repayment schedule remains manageable during slower business periods.

The names and features of loan products can vary between lenders. Check the facility documents for the exact permitted use, withdrawal rules, collateral requirements, fees, and repayment conditions.

Start by identifying the expense you need to fund and the time at which you need the money. Then compare the available loan structures against your business's cash flow and repayment capacity.

• Define the funding purpose: Decide whether you need money for operating expenses, machinery, or a planned one-time requirement.
• Estimate the amount: Prepare a cost breakdown and borrow only what you reasonably need.
• Review your cash flow: Match the repayment schedule with the timing and reliability of your business income.
• Compare the total cost: Consider the interest rate, processing fee, facility or maintenance charges, prepayment charges, and other applicable costs.
• Check collateral and eligibility: Confirm the lender's requirements and whether the product is secured or unsecured.
• Plan for contingencies: Check whether you can continue repayments if sales fall or customer payments are delayed.

Use the business loan EMI calculator to estimate your monthly repayment based on the amount, interest rate, and tenure you are considering.

Before applying, review your business's financial position and the lender's eligibility requirements. Keep your business and identity documents ready, and make sure that the information in your application matches your financial records.

• Check your credit profile and repayment history.
• Review your business vintage, income, turnover, and existing financial obligations.
• Prepare bank statements, tax records, and proof of business ownership as required.
• Confirm the loan amount, tenure, interest rate, fees, and repayment terms.
• Understand whether the facility allows multiple withdrawals, part-prepayment, or re-availment.

You can check your business loan eligibility and review the documents required before proceeding with an application.

Once you have identified your funding requirement, compare the loan amount and repayment structure with your business cash flow. Bajaj Finance offers business loans from Rs. 2 lakh to Rs. 80 lakh, with repayment tenures ranging from 12 months to 96 months, subject to eligibility and applicable terms. The available variants include Term Loan, Flexi Dropline Loan, and Flexi Hybrid Loan.

The business loan is unsecured, so you do not need to provide collateral or a guarantor. The interest rate ranges from 14% to 23.50% per annum, and the processing fee may be up to 4.72% of the loan amount, inclusive of applicable taxes. Other charges may apply depending on the loan variant and transaction. 

If you are ready to explore the funding available for your business, check your pre-approved business loan offer to view the offer available for your profile and review the applicable loan amount, interest rate, and repayment terms before proceeding.