8 Kinds of Business Finance in India

Finance is the lifeline of every business. It's not just crucial for the company's success, but it also helps set the company up from the ground up. The world of company finance has advanced significantly since the days of conventional borrowing.

This article will cover eight business finance types in India.

Bill Discounting

This is one of the business finance types where the Borrower presents the Bank with a bill of exchange from his customer, and Bank pays Borrower instantly after subtracting a discount or commission. The Bank then delivers the Bill to the Borrower's client on the due date and collects the full payment. Or, his customer may be required to pay interest to the Bank if the payment on the Bill is late.

LCBD (LC Backed Bill Discounting), CBD (Clean Bill Discounting), DBD (Drawee Bill Discounting), and IBD (Invoice Bill Discounting) are the four types of bill discounting. The financing of bills is a significant aspect of Trade Finance and working capital finance as a whole.

Term Loan

Loans with repayment terms and fixed interest rates are term loans. A term loan is one of the business finance types classified as short, medium, or long-term. Repayment terms for both types are between 12 months and five years.

Loans with terms of 1 year or less are considered short-term, while those with five years or more are considered long-term. Banks are willing to give out company loans of up to Rs. 2 crores (and much more) without any security. A term loan's payment duration is determined when the loan is granted.

Letter of Credit.

In the form of a credit letter, banks and other lending institutions guarantee the payment of any outstanding balances owed by businesses engaged in international trade. It is one of the business finance types that benefits both commercial import and export. Many suppliers that international businesses work with are unfamiliar, so they need payment certainty before doing business with them. Thus, this letter of credit plays a beneficial role in providing payment assurance.

Working capital Loans

One of the prime business finance types is a working capital loan. It is offered to self-employed individuals, business owners, and startups to enhance cash flow and manage business operations. These business loans are short-term loans so that you can meet urgent cash requirements from them. You can repay this loan within a year. NBFCs and Banks offer these loans, and they can be both unsecured and secured.

POS Loans (Point-of-sale)

Also called merchant cash advances, POS loans are one of the business finance types where you pay an advance to your suppliers through your daily debit or credit card transactions. Several times, merchants of small enterprises face a cash crunch. Thus, most entrepreneurs opt for these POS loans to reduce the liquidity crunch.

Machinery or Equipment Finance

Machinery or equipment finance is one of the business finance types offered to borrowers who desire to purchase new machinery and equipment. Large businesses and those in the manufacturing industry are the most common users of equipment finance. Businesses or business owners that borrow money for machinery or equipment also gain tax-wise. Each lender will provide a different interest rate, loan size, and repayment period.

Loans under the government schemes

The Indian Government has launched many loan programmes for women entrepreneurs, organizations, MSMEs and other manufacturing organizations. Multiple financial institutions, namely the public and private sector banks, the RRBs (regional rural banks, the small finance banks and microfinance institutions (MFIs) offer loans through government initiatives.

Overdraft Facility

An overdraft facility is one of the business finance types offered by a bank to its account holder to withdraw cash from their account even if the account balance is zero. The sanctioned credit limit depends upon the account holder's relationship with the Bank, credit history, cash flows, and repayment history, if any. The overdraft limit is revised annually and can be used in any manner if the interest is paid on time.

Conclusion

By now, you must understand the different business loan programmes lending organizations in India offer. Business loans are available with flexible, straightforward EMIs at low, appealing interest rates. So, what are you waiting for? Reap the maximum benefits of business finance today!