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Loans that you avail for business purposes are known as commercial loans. When you require finances for managing your financial business requirements, then you can avail a commercial loan. Many financial providers in the country offer commercial loans for businesses in need.
There are many different types of commercial loans available for businesses to use. You must select the one that best ensembles your requirements to get benefited from it. Here are the types of commercial loans that you can avail:
A term loan is a loan for business purposes that you should repay within a fixed tenure to your financial provider. The loan will come along with a fixed interest rate throughout the term that you should pay along with the loan amount.
Term loans are mostly secured loans that involve collateral, but some financial providers can provide term loans without collateral as well. A secured term loan has a lower interest rate when compared to that of an unsecured term loan.
According to your finances, you can choose a repayment schedule and tenure that best suits you:
- Medium Term Loan: Tenure between one to three years.
- Long Term Loan: Tenure ranges above three years.
- Short Term Loan: Tenure ranges lower than one year.
Bank Overdraft Facility:
A bank overdraft facility is a credit that you can avail, which will enable you to withdraw higher funds that are usually available than your current account. You should repay the amount you use from the funds and the interest for it within the tenure.
The amount you can use from this facility has a limit beyond which you cannot withdraw funds. When you require funds for the short term, and the value is less. Then a bank overdraft is the best option for your funding requirement.
Letter Of Credit:
A document that a financial provider issue that denotes secure payment for a particular seller with specific papers that they present to the lender is known as the line of credit. The payment that you make for the services will be valid with this letter.
A letter of credit will act as a guarantee to the vendor that they will get their money as agreed sooner or within a particular tenure. This method helps trade financing when you sell goods overseas or trading parties that you are not aware of well.
A bank guarantee is also a document similar to “letter of guarantee.” A financial provider will issue it on behalf of their customer to a beneficiary that you will get a particular sum. You can get a presentation as a letter of guarantee that will be valid for a specific time before which you get your payment.
The letter of guarantee comes with certain conditions that you should follow when you want to avail it. Unlike a line of credit, the amount you will need to pay for the opposite party alone will get stipulated under the contract. You can use this when you want to secure your buyer or seller from loss or damage because of your business performance.
Lease finance is a modern-day financing option that will help individuals to use it for their business purpose. Lease financing will allow you to own or make use of specific assets for long or short term financing needs in return for previously set payments.
The lessor will purchase the asset and will become its legal owner as per the financial provider. When the leasing period ends, the lessor will recover a large portion of the initial cost of the identified asset with the earned interest from rentals and instalments.
The lessee also has an option to acquire ownership of the specified asset by paying the rental or instalment or by bargaining a final purchase with the lessor. Through that term of the leasing period, the finance provider will be the owner of the specified asset. But, the lessee will have control over the asset, and use it as they need.
Unsecured SME Loan:
Business loans offered to small and medium scale enterprises without collateral is known as unsecured SME loan. In this loan type, the financial provider will not ask for collateral when you require funds for your business purpose.
You can use this loan amount for any of your working capital needs like purchasing equipment, stocking up inventory, expansion of business or other things. But when you are into retailing and trading, you are not eligible for this loan type.
Construction Equipment Loans:
When you are a construction company who wants to get equipment for your business needs, then a construction equipment loan is the best choice for you. When you want to buy equipment like backhoe loaders, excavators, cranes and other high-end construction equipment, then this is the flawless choice for you.
The tenure option for this loan type will range from 12 to 60 months that you can choose depending on your choice. The equipment that you buy with this loan amount will act as hypothecated collateral for the loan until you repay it.
SME Credit Card:
Credit card is another solution for all your financial problems. You can avail the loan amount for this loan as cash credit or a term loan. The quantum credit for this loan type is up to Rs.10 lakhs. Small industrial units, small business enterprises, small retail traders and transport traders can use this business. The repayment schedule for this SME credit card is five years when you avail term loans and three years when you opt for cash credits.
Commercial Vehicle Loan:
When you want to purchase vehicles for your commercial business usages like trucks, tippers, light and heavy commercial vehicles and buses, then you can avail this loan. The tenure option that you get for this loan type is 12 to 60 months—depending upon your financial needs and financial situation you can choose the tenure that best suits you.
When you are a business that has more than two years of business experience, existing commercial vehicle, strong customer base and transportation base, then this loan type can help you. You can get this loan when you want to avail funds for commercial vehicle needs for your business.
You should analyse your needs and requirements, and you can choose the loan type that best suits you. So always think before finalising on the loan type you want.