The 4 types of business loans explained
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The 4 types of business loans explained

  • Highlights

  • Finance unpredictable or seasonal needs with Flexi Loans

  • Fund operational expenses and inventory with Working Capital Loans

  • Install new plant and machinery with Machinery Loans

  • Bajaj Finserv offers a suite of Business Loans for SMEs

Whether it is daily cash flow needs, money for expansion or funds for equipment purchase, a business needs financing at every stage to function and grow. Being aware of some of the common sources of business finance can help you tackle your monetary needs quickly and decisively. Here’s a look at the 4 main types of business loans:

1. Flexi Business Loan

I) This loan type gives you access to a loan limit of the maximum amount that you are eligible for up to the limit of Rs.30 lakh. It allows you to avail funds based on your cash needs as and when you need them on a flexible repayment tenor.
II) Say your business manufacturers school uniforms, and your need for finances depends on the season. You get approval for a Flexi Business Loan of Rs.24 lakh in May.

This month you need to purchase knitting machines costing Rs.6 lakh for sports jerseys and sweaters for the winter season. You can withdraw this amount from the loan limit, and pay interest only on this sum. Say you need to outsource the production of children’s socks in August due to a shortage, which requires Rs.1 lakh. You can avail it immediately without making multiple loan applications. Now you will pay interest on Rs.7 lakh out of the total sum of Rs.24 lakh.
III) Thus, this loan not only helps you finance unpredictable or seasonal needs, but also saves you from paying extra interest on unutilised funds. Further, you can choose only to pay your interest component as EMIs, making your cash flow management easier. You can pay off your principal at the end of the tenor when you receive the payment due to you. This loan also allows you to part prepay funds when you have them to reduce your interest, and re-avail prepaid funds when you feel the need. Thus, it is perfect for small businesses that require the utmost flexibility in finances.

2. Working Capital Loan

I) This is a customised loan option designed for business owners who want to specifically finance their working capital needs.
II) A school uniform manufacturer, for example, could find that the cost of raw materials has increased due to a shortage of cotton mix yarn. Insufficient working capital in this case would hinder the production, and thus impact revenues negatively.
III) A working capital loan can thus help you source everything you need to keep your business running, be it needed inventory or other operational expenses. The advantage of this loan is that is usually sanctioned quickly to finance urgent needs and does not require any collateral. It helps you protect your current assets from liquidation, while keeping your business running during a slump. This loan also features simple eligibility criteria and an easy application procedure.

Additional Read: What is Working Capital?

3. Machinery Loan

I) As the name suggests, a machinery loan is a customised means of financing equipment or machinery, be it to lease, buy, upgrade, repair, transport or install machinery. It may even be used to train your workforce to use and maintain specialised equipment.
II) Whether you are expanding your operations or require the right machines for a large order, this loan helps you take care of all aspects related to acquiring it. Taking the same example of a school uniform manufacturer, this loan can help fund the purchase of single universal sewing machines, single automatic zig zag machines, singer overlock machines and even equipment like industrial pressing irons, cutting tables and industrial scissors.
III) It helps you acquire important assets for your business without needing you to pledge assets as security. Using this loan, your firm can meet increased demand and boost productivity too. This loan also features a Flexi loan facility, which helps you finance equipment in instalments, based on business needs.

Additional Read : Requirements for a Business Loan

Flexi Loan for Business

Dos and Don’ts when applying for a Business Loan

Business loans from Bajaj Finserv are designed specially to help growing businesses meet their financial requirements. Easy to apply for and hassle-free to avail, these loans come with several unique benefits that make them the ideal mode of business finance for small and medium sized enterprises. However, when applying for a business loan, there are certain dos and don’ts that you should keep in mind, in order to ensure that your application is processed smoothly. Here, we tell you what they are.

Dos and Don’ts when applying for a Business Loan

4. Business Term Loan

I) This is a term loan with simple eligibility criteria, which allows you to borrow an amount usually up to Rs.30 lakh. It features a flexible repayment tenor and is offered at a nominal interest rate. Though term loans are usually of two kinds, secured and unsecured, a business loan is normally unsecured. This saves you from having to attach personal or business assets as security.

II) A school uniform manufacturer could use a business

loan to pay off vendors like textile suppliers or equipment suppliers when his receivables are delayed or use it for distribution costs during a period when revenues are lean due to price subsidisation. He can also use it to pay off his workers during months when sales are slow.

III) There is no restriction to the use of a business loan, and you have the freedom to use it to suit your business purpose. This loan also allows you a Flexi loan facility, so you can pay off unexpected expenses without hassle. It has a range of other benefits like quick processing and fast disbursal of cash in the bank.

Since a cash need may arise at any time, do your research and stay prepared by understanding the various types of loans that you can take advantage of. This will help you fulfil your immediate needs for cash and ensure that you are able to repay the loan easily and conveniently.

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