{"id":21392,"date":"2023-01-03T15:45:59","date_gmt":"2023-01-03T10:15:59","guid":{"rendered":"https:\/\/open.money\/blog\/?p=21392"},"modified":"2023-07-05T17:34:17","modified_gmt":"2023-07-05T12:04:17","slug":"7-types-of-business-loans-every-entrepreneur-should-know-about","status":"publish","type":"post","link":"https:\/\/open.money\/blog\/7-types-of-business-loans-every-entrepreneur-should-know-about\/","title":{"rendered":"7 types of business loans every D2C business should know about"},"content":{"rendered":"

33% of small business owners struggle or fail due to a lack of capital – ZIPPIA<\/span><\/i><\/p>\n

Oftentimes, due to a lack of long-term planning and a tendency to underestimate their potential for growth, businesses don\u2019t realise that they need extra funds or loans. <\/span>Additionally, there is a traditional stigma associated with taking <\/span>business loans<\/b> because loans are viewed as a sign of a flailing business that cannot meet its needs within its own revenue. <\/span>By the time businesses actually get convinced about the need for a loan, they are in such dire need of funds that it becomes impossible to manage core business activities without them. <\/span>All businesses including D2C businesses<\/span> require funds to fulfill needs such as purchasing assets that might include land, a shop, new machinery, or leasing a factory. Important business requirements also include working capital for growth perspectives. Here, <\/span>business loans<\/span><\/a> come in to ease business owners\u2019 worries. These loans include <\/span>business loans for new businesses<\/b>, advance loans, etc. Business owners can apply for loans depending on their needs and preferences.\u00a0<\/span><\/p>\n

The more desirable scenario, i.e. a business getting a loan to fuel future growth, is also addressed with business loans. <\/span><\/p>\n

At 85%, the approval rate for merchant cash advances is the highest of all types of small business funding – Fundera<\/span><\/i><\/p>\n

There are 7 types of business loans broadly<\/b><\/h2>\n

1) Working Capital Loan<\/b><\/h3>\n

Working capital loans are used to meet daily business requirements such as inventory needs, <\/span>payroll<\/span><\/a>, rent, utilities, etc, and is one of the most popular types of <\/span>business loans for new businesses.<\/i><\/b> Also, they help with several business expansion services. For example, if a business requires to buy new equipment for expansion, a working capital loan can be of great help. The main purpose it serves is to cater to the short-term needs of the business. Normally, businesses can get working capital loans up to Rs.40 lakh in which the payment tenure remains 12 months but may also increase if the business demands so. <\/span>In the realm of D2C business requirements where business demands can suddenly increase, working capital loans can be of great help.<\/span><\/p>\n

Funding numbers are expected to grow from $2.3 billion invested in \u2018seed to series A\u2019 startups in 2021 to $ 2.3 billion in 2023 – IvyCAP ventures<\/span><\/i><\/p>\n

2) Letter of Credit<\/b><\/h3>\n

This loan proves to be very useful for enterprises that trade internationally. A letter of credit loan can be thought of as a credit limit. In this, a bank lender offers a funding guarantee to enterprises that deal with international business transactions. It can be used for import as well as export purposes. Enterprises doing business overseas fear faulty payments (sometimes no payments at all) as they trade with unknown suppliers. A letter of credit provides them with an assurance of payment before enterprises perform any transaction. The key benefit of this loan is that it provides a seal of assurance and confidence to suppliers. Eventually, it helps business owners and entrepreneurs to carry out their businesses without worrying about payment defaults.<\/span><\/p>\n

3) Start-up Loan<\/b><\/h3>\n

There are more than 39,000 startups in India at present that have access to many private equities and debt funding options – Bank Bazaar<\/span><\/i><\/p>\n

A startup loan is essentially for budding business ventures. So naturally, it is a boon for\u00a0 D2C brands that have just started their business journey. Applicants for this loan do not usually hold any concrete credit history on their business or company. A lender gauges the borrower’s eligibility for this loan through his\/her personal credit history along with the business credit history (if available). Important business financial figures like the current turnover of the business are taken into account to decide on the loan amount, interest rate, and repayment tenure. The best part about startup loans is that borrowers do not have to carry the burden of good credit history of the business to get the loan approved. Even an entrepreneur with an idea or a business owner at an early stage can apply. The government of India has also rolled out startup business loan schemes for MSMEs and startups such as Bank Credit Facilitation Scheme, Pradhan Mantri Mudra Yojana (PMMY), Credit Guarantee Scheme (CGS), Startup India, and more. Additionally, entrepreneurs looking for business loans for new businesses prioritise start-up loans mostly because this loan type offers affordable interest rates for repayment.<\/span><\/p>\n

4) Term Loan\u00a0<\/b><\/h3>\n

A term loan is one of the most common business finance options and has three categories:<\/span><\/p>\n