Important Component of a Business Loan for Your Start-up

We are currently living in a time where startups are flourishing more than ever. More and more young people are taking up initiatives and making their own rules to abide by while running their dream business ventures. However, not all this is as easy as it seems. The issue of right capital available at the right time is a critical success factor.

Owing to this increasing need of budding business-minds all over the country, business loans came into existence. A business loan not only helps you start-up your dream venture, but it also aids other crucial aspects of business like expansions, inventory purchase, capital requirement, bill discounting, etc.

Before you go ahead and start considering a loan for your business idea, you would need to know a few more things about them. By knowing about various factors like business loan interest rates and collaterals, it becomes easy for a new entrepreneur to manage business loans as per his/ her repayment capacity

We will run you down a few important categories to help you make the right decision when opting for a business loan from a well-known financial services institution.

  • Term loans

When you are opting for a loan, any loan for that matter, the first thing you look at is the term. You have to rope in the term you need the loan for – long-term, short-term or mid-term. What qualifies a loan as a short-term loan is if it opts for three years or less.

A long-term goal is 10-15 years. Term loans further bifurcate into secured and unsecured loans. Secured loans consider property, business premises, machinery, etc. as collateral and will have lower business loan interest rate than unsecured ones. So if you have assets to back your loan, then it recommended to go for secured business loans.

  • Bill discounting

In this, you will get instant cash on large purchases. Discounting your purchases at your bank gets you instant cash on the credits sales you make. All you need is to produce documents that authenticate your transactions like invoices, receipts, bills, etc.

  • Temporary funding

Generally called Overdraft, it is overdrawing from your current account. To put it across simpler, more money can be withdrawn by the account holder, than what has been deposited. The business loan interest rate would be charged at an agreed rate if the amount overdrawn is within the limits of agreement. A higher rate is applicable if the overdrawn amount is higher than the limit.

  • Letter of Credit

Primarily used in international transactions of bigger value, letters of credit are used in land development processes. A letter of credit is used in international finance where the buyer and the seller do not know each other. Bank’s creditworthiness facilitates the business.

Parting thoughts

Knowing these concepts can help you to get just what is right for you. Based on your business needs, your reliance on a loan may vary. These categories may cater to your needs and help you make the right call.

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