Business loans are an important financial product for business owners. Banks and alternative lenders are the best options for these business owners. The business owners get different business loan options, ranging from secured loans to unsecured loans
But there are several lenders available in the market which leads to confusion. Below, we have mentioned a guide to help you comprehend the way to choose the best business loan provider in India.
Before jumping onto the details to choose the best type of business loan, we recommend you to take time and assess your needs first. Following are some questions that you can ask yourself and start your research with:
- How much do you need?
- What is the need?
- How long will you take to repay the loan?
- How long have you been in business, and what is the current financial shape of the business?
- Can you offer any asset as security?
- What is your credit score, and are there any outstanding loans?
- Do you require a short-term or long-term loan?
Once you have answers to all these questions, it is now time to consider different types of loans and choose the best one for you. From there, learn about the best business loan lender and how to apply with then.
Types of Business Loan Providers
SBA Loans
- Small Business Administration or SBA loans are specific loan programs which are designed to meet a range of financial requirements of a small business.
- The SBA loans reduce the risk of the lenders as the government guarantees the loan will be repaid.
- A business owner can choose from the variety of SBA loans as per the specifications related to how to use money and when it should be repaid.
Pros & Cons
The government guarantee is typically 75-90% which eliminates the risk for the lenders. Therefore, these types of loans are termed as favourable for borrowers. The disadvantage of SBA loans is that it requires additional paperwork, the fee is also extra, and it takes a longer time to get approved. You may also need to meet stricter eligibility criteria to qualify for the loan.
Conventional Bank Loans
One of the most significant advantages of availing a bank loan is that some carry low-interest rates, because of the competition. However, the approval process is very long and slow. So, if you wish to avail quick business loans, bank loans are not the option for you. Additionally, it is difficult to get small business loans approved by conventional banks.
NBFCs
- Small business owners are generally attracted to NBFCs as they offer an instant business loan.
- NBFCs don’t have a lengthy loan application process for small business loans.
- NBFCs typically offer online business loan, and they approve/disapprove the application fast, in as less as just three days. Even some NBFCs approve and disburse the loan in only three days.
- There are many NBFCs that offer small business loans online. This provides the business owner multiple options to choose from.
- The best example of an NBFC is ZipLoan. It as an RBI registered NBFC that offers unsecured business loans in just three days.
Pros and Cons
The positives of availing an NBFC business loan is that there are not many restrictions on the end use of the money. And the loan is approved instantly. There are not many downsides of an NBFC business loan as their interest rates too are very competitive in the market.
Now let’s read about the types of business loans you can avail.
Types of Business Loan
- Equipment Loan: this type of loan provides you with funds to invest in equipment and machinery. The loans can also be used to upgrade the machinery or equipment to the latest version. Equipment plays a vital role in the production and overall profit of the company. Besides, this loan can also be used to invest in tools, vehicles, and make monthly payments on the same aspects. One of the top advantages of machinery loans is that they can be availed easily and there is no need to offer collateral since the machinery/equipment bought itself serves as collateral.
- Working Capital Loans: these are short-term business loans for businesses that require money to fund business operations. Working capital loans can be availed from both banks and alternative lenders. The advantage of availing this loan is that you can keep the business operations run smoothly while you search for ways to increase revenue.
- Line of Credit: like working capital loans, line of credit too provide money for day-to-day financial requirements. Notably, the line of credit is not recommendable for larger purchases and are very short-term loans. With this type of loan, you only pay interest on what you use and not on the entire amount. Additionally, these loans are unsecured and don’t require security. You can also avail these loans to build your credit score to secure a higher amount of loans in near future.
The best type of loan lender for you would be the one who offers loans at easy-to-meet eligibility criteria and within a short period of time. Besides, you also need to consider the business loan rates to make the best choice.