Business Loans For Startups Made Easy!
When it comes to startups the main question entrepreneurs juggle with is, “where is the money?”. Apart from investors, Indian banks are also taking a keen interest in facilitating new age entrepreneurs with attractive business loans and various funding schemes. Let’s take a look at what do these banks have in store for startups and how to incur sweet benefits using business loans from banks for growth and sustainability.
Bank Loan for Startups
Today, banks thrive harder to provide monetary security by introducing special business loans which include:
Working Capital Loan
The purpose is to fund company’s every day or short-term operational needs. These needs include wages, rent, inventory costs and so on. Seasonal businesses can opt for a working capital loan as their business activity is reduced or low otherwise. For example, companies manufacturing firecrackers will make maximum sales during Diwali whereas companies producing umbrellas will make most profits from June to September in India.
Term Loan
This type of loan is granted to small businesses in mainly hard cash in order to purchase fixed assets. Fixed assets include tangible goods — laptops, machinery & equipment, furniture, vehicles and intangibles — goodwill, copyrights, patents, to name a few. Term loans are sanctioned to borrowers for a fixed amount and time period. Approximately, the repayment process can extend to 1–25 years.
- Intermediate Term: This type of term loan runs for less than 3 years and is paid in monthly installments. A balloon payment process, wherein a portion of the total amount is paid initially and the rest is paid altogether in the final repayment, is also eligible here.
- Long Term: As the name suggests, it can last up to 3–25 years. The most common type of long-term loan is bonds. Bond sales bring in immediately. The only distinguisher between an intermediate and long-term loan is the time period for which the loan is sanctioned. It also limits other financial support a company may take on such as other debts, dividends, etc.
Secured Loan
In this type, the borrower pledges his property or other valuable assets to the lender, in this case, a bank, in order to secure loans. This pledged property is known as a collateral. Once the collateral is secured by the bank, it has full authority and charge over it. It means, it can be seized, liquidated or sold by the bank at any time in case, the borrower faulters to repay in time. Here the bank evaluates the company’s (borrower’s) present earnings over its credibility.
Mortgages are a classic example of secured loans. For instance, if, you pledge your current home or previous office for your new startup up venture to the bank in opposition to a business loan, then the bank has complete power over your pledged asset or collateral. In case you fail to repay, the bank will take over your collateral completely.
Unsecured Loan
These are the exact opposite of secured loans. No collaterals or seizing is involved here. The banks lend loans to companies solely on the basis of company credibility history. The credit must be really high to be able to get unsecured loans. Unsecured loan has high rate of interest compared to secured loans because it is risky for the banks to lend such big amounts without any security involved as such. Unlike secured loans, where the banks can repossess the collateral if company defaults repayment, in case of defaulting under the unsecured loan, the bank can trigger a collection agency to collect the debt amount or it can drag the company to the court.
Business loans in India are usually granted for an amount ranging from Rs. 50,000 to 75 Lakhs. But this amount may vary as per the terms and conditions laid down by the banks. However, it is always recommended to go through the T&C before finalizing any type.
Learn the Business Loan Sanction Process in detail and more directly on the blog now!
This article was originally published on PayUmoney Blog
