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Different Types of Business Loans in India
The business loans you can choose, the functions you can use them for – all on this page.
Different lending schemes are designed to help business entities of diverse sizes get financial assistance to run operations smoothly. Each lender, be it a bank or Non-Banking Finance Company (NBFC), offers a wide range of loan schemes to meet the varied needs of their customer. These loan schemes can be divided based on various factors including the size of business, type of business, industry sector to which the business belongs, type of financial needs of the borrower, etc.
The types of business loans offered by India banks fall into these categories:
Short-term Loans
These are generic loan schemes offered by Indian banks to businesses to help them meet their short-term needs. Working capital needs such as investment in current assets, salary payments, power charges and the purchase of raw materials can also be fulfilled by availing a short-term loan. Some short-term loans can be renewed annually subject to terms.
These loan schemes may be named along the lines of:
- Working capital loan
- Overdraft (OD) facility
- Cash Credit facility
- Short-term loan
Long-term Loans
These loan schemes help business entities meet their capital expenditure needs including the acquisition of land and building, purchase of machinery / vehicle / equipment and construction of office units. Businesses in all major industries can avail these loans for business expansion and related activities.
These loan schemes may be named along the lines of:
- Term Loan
- Composite Loan (Working Capital + Capital Expenditure Loan)
- Business Loan
Asset-backed Loans
If the bank is offering a loan against an asset owned by the business then it is known as an asset-backed loan. These are secured loans since the assets act as collateral/security for the loan and may come at a relatively low-interest rate as compared to unsecured loans. Businesses prefer to avail of such loans to meet their capital expenditure needs as the burden is considerably less.
These loan schemes may be named along the lines of:
- Loan Against Property
- Mortgage Loan
- Loan Against Future Lease Rentals / Lease Rental Discounting
- Loan Against Negotiable Warehouse Receipts
- Loan Against Securities
- Loan Against Time Deposits
- Loan Against Shares
- Loan Against Mutual Funds
- Loan Against Vehicles
Project-specific Loans
If a business has multiple projects running at a time, they can opt for project finance schemes. These schemes are sanctioned based on the viability of the project. This means that the same business can have multiple loans from banks for different projects. Such loans are quite common in infrastructure and construction businesses.
These loan schemes may be named along the lines of:
- Project Finance
Industry-specific Loans
As the name suggests, these loans cater to the different needs of businesses in different sectors. They may be further divided into subcategories based on the business activities involved. For instance, a bank may offer a trade finance scheme and include different types of loans for pre-shipment and post-shipment activities.
These loan schemes may be named along the lines of:
- Loans for Educational Institutions
- Trade Finance
- Export Finance
- Infrastructure Finance
- Loans to Business Correspondents
- Contractor Loan
- Loan Scheme for Professionals (Doctors, Engineers, CAs, CS’s, Architects)
- Loan for Units Engaged in Hospitality
- Loan for Wholesale & Retail Traders, Dealers and Distributors
- Loan for Small Road and Water Transport Operators
- Loan for Green Enterprises
- Loan for Eating Joints
- Loan for Hospitals and Medical Professionals
Loans for Purchase of Vehicles, Equipment, etc.
Businesses in certain sectors such as transportation, construction, infrastructure, manufacturing and service sectors may need vehicles or equipment to carry out business activities. Indian banks have a range of loan schemes catering to them.
These loan schemes may be named along the lines of:
- Commercial Vehicle Loan
- Construction Equipment Loan
- Loan for Purchase of Pre-owned Vehicles
- Loan for Purchase of Pre-owned Equipment
- Loan for Renting Construction Equipment
A Final Word
Now that you know about the different types of business loans offered by banks in India, you might want to know which is the right loan option for your business. Please check our Business Loans page for details, if you are interested. We have covered different business loan schemes in India offered by the major banks in the country.
