The world of small business finance is huge. In the highly competitive business world of today, there are various ways you can get financing for your small business. In very simple terms, a loan is a sum of money you borrow from a lender that is expected to be paid back with interest in a certain pre-decided time. Whether it be to buy new machinery or equipment to improve the production process or to cover day-to-day operational costs during a slower phase of your business, there are various kinds of loans available in the market to help you.
At ZipLoan, we provide you with various options to help fuel the growth of your business. In this blog, we will take a look at the five kinds of loans you can take to aid the growth of your business.
Unsecured Business Loans
An unsecured loan is just the opposite of a secured loan. So, before we get to know what an unsecured loan is, let’s quickly understand the term secured loan.
A secured loan is a loan backed by collateral. Collateral is an asset, such as your home, car, or jewellery, which you pledge to the lender as a security for your loan. If you take a secured loan and default on your repayment of the loan, the lender has the right to seize and sell the collateral and recover its losses. The lack of a high-value asset that can be pledged as collateral often becomes a hindrance in the business growth journey of small business owners.
Unsecured loans can be the saviours of such business owners. You don’t need to pledge any collateral to the lender to take an unsecured loan. An unsecured loan is given to you on the basis of your credit history or creditworthiness. Apart from the absence of the need for collateral, an unsecured loan has other benefits. It is available in small amounts that come with short repayment deadlines. This can be extremely helpful for small businesses that are often in need of small amounts to cover operational costs and don’t want to commit to long repayment deadlines associated with secured loans.
Machinery Loans
For small enterprises and businesses involved in the manufacturing sector, machinery is the key asset. The presence of the newest machines in your factory equipped with the latest technology can revolutionise the way your business is conducted.
Better machinery will lead to faster and higher production of goods. Thus, helping you reduce costs involved in the production and increasing the profits for your business. Constant maintenance and timely upgrade of machinery are required to be done by businesses to stay competitive in today’s business world. Machinery and equipment are also one of the costliest assets a business invests in. Machinery loans can help you solve that problem.
At ZipLoan, we offer hassle-free machinery loans to aid you in your business journey. Our machinery loans require few documents and are quickly processed so that you can worry more about the growth of your business than the processing of the loan.
Term Loans
Businesses often require loans for the purpose of business expansion. A term loan provides a business with a certain amount of cash and requires regular payments over a set time to repay the loan plus interest to the lender. Businesses can use term loans to fulfil a huge one-time cash need or purchase fixed assets, such as machinery or equipment.
Term loans can be secured or unsecured, which means they may or may not require collateral. They usually require collateral and have a fixed interest rate. Term loans come in a few varieties, which depends on the lifespan of the loans. A short-term loan usually runs less than a year, an intermediate-term loan generally runs more than a year and less than three years, and a long-term loan usually runs longer than three years.
Working Capital Loans
Before we understand what working capital loans are, let’s first look at what working capital is.
Broadly speaking, the capital of a business used in its day-to-day operations is working capital. In mathematical terms, working capital is calculated as the current assets minus the current liabilities. Working capital is of utmost importance in the day-to-day operations of your business. Sound knowledge of the working capital of your business will be highly beneficial to it. From the payment of the electricity bills of your office to the payment of salaries of your employees, everything requires working capital.
A working capital loan is taken to finance a business’s everyday operations. Sometimes, your business may be facing a rough phase, where the cash-in-hand may not be enough to deal with the daily expenses your business incurs. That’s when you can secure a working capital loan.
Working capital loans are easy to obtain and will help you cover daily operational expenditures. Small businesses in the manufacturing sector often have seasonal sales. Working capital loans can be a boon to those kinds of businesses. Working capital loans are not taken to buy assets or to make long-term investments, rather covering short-term operational expenses is the goal behind such a loan.
SME Loans
SME stands for Small and Medium Scale Enterprises. The definition of SMEs is provided in Section 7 of the Micro, Small & Medium Enterprises Development Act, 2006 (MSMED Act). It classifies SMEs on the basis of their annual turnover. Earlier, the SMEs were divided into two classes- manufacturing enterprises and service enterprises. However, this classification is now abolished.
In India, SMEs are understood as enterprises where their annual turnover is between Rs. 5 to 250 crores.
At ZipLoan, we understand the financing needs of SME owners. Hence, we have easy eligibility criteria. Besides, we have quick, hassle-free online, and paperless application process, and require minimal documentation to give SME loans for your small business. Being registered as an SME has multiple benefits, and one of those is getting easy SME loans.
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