Business loans are typically taken to cover the cost of expansion or to meet day-to-day requirements. Though these loans can be both secured and unsecured, in this post, we will cover secured business loans in the most simple terms possible.
What are Secured Business Loans?
When you take a loan by putting up an asset as collateral, then it is referred to as a secured or collateral business loan. The asset can be immovable property, jewelry, machinery, and or any other asset that you have.
What are the Main Features of a Business Loan?
The main features of a secured business loans in India are:
- The principal amount is taken as a loan
- Rate of interest charged by the lender
- Tenure or the time in which you repay the loan
- Equated Monthly Installments or EMIs which help repay both the principal amount and interest accrued.
What are the Different Types of Business Loans?
Though every finance company in India will offer different plans, we have created a list that covers the broad range of plans available in India:
1. Term Loans– Lump sum amount availed by a business owner for six months to 25 years – depending on the tenure they can be divided into short-term, mid-term, and long-term loans.
2. Business Line of Credit– The loan works as a business credit card. Businesses can use the money as per their requirements, and typically, interest payable is on the amount used and not the whole amount sanctioned.
3. Equipment Loans– Loans taken to buy equipment or machinery required for the business. You can use the equipment purchased as collateral.
4. Inventory Financing– The loan is for businesses that require cash inflows to stock inventories as per requirement.
5. Working Capital Loan– You take this loan to meet the day-to-day expenses or the working capital of your business. It is usually a short-term loan.
Who can Avail a Secured Loan for Business?
Once again the eligibility criteria may vary from company to company, but the broad range is given below:
1. Proprietorship firms
2. Partnership firms
3. Limited Liability Companies
How Do I Apply for and Get a Loan for My Business?
There are three important things for you to remember when looking for a business loan:
1. Eligibility Criteria– There are standard criteria, such as the business should have profitable operations for the preceding two years backed by an adequate financial statement.
2. Documentation– You have to fulfill the documentation and KYC requirements when applying for a loan – some of the documents you are required to produce are Facility Agreement, Deed of Hypothecation, security checks, Guarantee agreement signed by guarantors.
3. Applying for the loan– You can now search and apply for secured loans online. Use the EMI calculator to check out the EMI and your repayment capacity before applying for a loan.
In the end, it is your research that is of utmost importance. Though choosing a collateral business loan with the lowest interest rate is important, you should also look at how quickly the loan is sanctioned for your use.
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