What are the 7 Different Uses of Business Loan in India?

Businesses, irrespective of their size, regularly need funds to manage their day-to-day operations. Generally, the funding requirements are high in the initial phase and also when a business is aiming for growth and expansion.While there are options such as pooling funds from investors or raising the same from the market, the implications of these options are often not in the best interest of the business in the longer run. As a result, an increasing number of companies now prefer taking a business loan.With the loan industry in India growing considerably, there are now many different types of loan options available for businesses. However, while it is comparatively easier to get business loans now, it is essential for a company to make sure that they are taking one for the reason that can actually help the business.So, what are the different ways in which a business can use a loan? Seven of the most popular options are as follows-

With a business loan, a company can get the cash flow, which can be used to replenish existing stocks and purchase new stocks when required. If your inventory is up-to-date and fresh, it will aid in broadening the appeal and reach of your brand. Providing more options to the existing customers and continuously reaching new people is very important for any business aiming to increase their sales. Suggested Loan - Unsecured Business Loans For purchasing inventory, you can consider loan options such as short-term unsecured loans . One of the biggest benefits of a business loan of this type is the fact that you are generally not required to pledge any collateral. A common problem for new business is the lack of assets that they can pledge for the loan.The availability of unsecured business loan eliminates this major inconvenience and allows businesses to borrow funds without keeping any collateral. These loans generally have a flexible tenure of up to 3-5 years and multiple repayment options are provided to suit your requirements better. -Why Consider Unsecured Business Loan?

• Collateral-free loan
• Flexible tenure and repayment
• Available for many different types of business expenses like purchasing inventory
• Loans of up to Rs. 50 lakhs

If your business is aiming for expansion, you will be required to buy new equipment to meet the growing production requirement. Commercial business equipment can be costly and can put much stress on the finances of a business. Suggested Loan - Secured Business Loan For purchasing new equipment, you can consider options such as a secured business loan . This type of loan requires you to keep security such as land, property, or other capital assets with the lender. As compared to unsecured loans, secured business loans are generally higher-value loans ideal for high expenses like purchasing new equipment.Repay the loan amount with the loan tenure, and you can get your assets released from the lender. However, if your business is unable to close the loan amount within the specified duration, the lender can initiate legal proceedings. -Why Consider Secured Business Loan?

• Ideal for high-value business expenses
• Land, commercial property, and many other types of capital assets can be kept as collateral
• Lower interest rate as compared to unsecured loans
• Loan of up to Rs. 5 crores

Another one of the common business loan uses is hiring and training employees. If business expansion is on your mind, apart from the equipment, you'll also need top talent to give your business an edge over your competitors. However, the cost of hiring and training new employees can be significant, especially if you are looking for senior level professionals. Suggested Loan - Line of Credit Depending on the size of your business and the number of employees you are planning to hire, you can consider options such as an unsecured/secured business loan or Line of Credit. The advantages of a business loan like LOC is that it doesn’t require you to pay interest on the entire amount you are eligible to borrow.For instance, if your LOC limit is Rs. 20 lakhs and you have only used Rs. 10 lakhs, you will only be required to pay interest on Rs. 10 lakhs that you have used. The repayment tenure is also highly flexible, and you also get the option to pre-close the loan. -Why Consider Line of Credit Loan?

• Interest applicable only on the amount used
• Quick processing with online application and approval
• Option to pre-close loan
• Loans of up to Rs. 25 lakhs

Just like purchasing a house is one of the biggest expenses of life for an individual, buying a commercial property is the same in the lifecycle of a business. The high cost of real estate in India often makes it nearly impossible for business to purchase commercial property without taking a loan. This is especially true for newer enterprises. Suggested Loan - Term Loan As purchasing commercial property is a big-ticket expense, you will have to consider a loan option like a term loan. As the name suggests, it is a high-value loan which is taken for a fixed term or duration. You can find unsecured as well as secured term business loans .For unsecured loans, the tenure is generally 3-5 years, and for secured loans, the same is 15-20 years. The interest rate on the term loan is either fixed or floating, and repayment is done on a monthly or quarterly basis. Why Consider Term Loan?

• Secured and unsecured option available
• An excellent option for high-value business expenses
• Fixed tenure with a fixed or floating interest rate
• Loans of up to Rs. 5 crores and above

The modern world of marketing is very different from what things used to be a decade ago. Businesses are now required to hire marketing agencies or have an in-house marketing team to stay competitive. Needless to say, marketing is now an expensive affair. Moreover, as marketing is an on-going process, businesses are required to keep investing in it regularly. Suggested Loan - Unsecured Term Loan If you are looking to go full throttle with marketing, a business loan can be an excellent option. No matter if you are more focused on online or offline marketing efforts, business loans like LOC or unsecured term loans can help you get the expected outcome.As these loans do not require any security and have flexible repayment tenures, they are one of the most convenient funding options for your marketing campaigns. With these loans, you can get up to Rs. 1 crore for a duration of up to 2-3 years. These loans are flexible, and once your application is approved, you are free to use the loan amount as per the needs of your business. Why Consider Unsecured Term Loan?

• Short-term business loan at a fixed interest rate
• Flexible repayment options
• Ideal for a wide range of short-term funding needs
• Loans of up to Rs. 1 crore

It takes a lot of money to ensure that the day-to-day operations of your business run smoothly. In the initial growth period, spending most of your business revenue on everyday operations can severely limit your future potential. In this age of cut-throat competition, it can be challenging for a business to survive if it is not adequately spending on its future. Suggested Loan - Working Capital Loan A smarter way to manage these expenses is to take a working capital demand loan. With this loan, you can finance the daily operations of your business and not spend your revenues on the same. One of the biggest benefits of a business loan of this type is that these are short-term, unsecured loans.A business can consider it for up to 2-3 years within which they can try to increase their revenues to an extent where it can comfortably accommodate the daily operations as well as future growth. With minimum eligibility and fixed interest rate, a working capital loan is an excellent option for managing many different types of day-to-day business expenses. -Why Consider Working Capital Loan?

• Collateral-free, short-term loan
• Minimum eligibility requirements
• Fixed interest rate
• Loans of up to Rs. 50 lakhs

Once the current company has stabilised, a large number of business promoters also consider the option of starting a new ancillary company. But starting a new company from scratch, even though you have the required experience, would still need a substantial amount of money. Suggested Loan - Promoter Funding While many business owners consider options such as pledging their commercial property for the loan, promoters can also look at the promoter funding option. With promoter funding, a promoter of a business can keep the owned shares of the existing business as a security with the lender and borrow a loan against the same.This is a short-term loan generally only available for 1-2 years. Some of the common business loan uses of this type of loan include starting a new business project, business diversification, and increase personal shareholding. Why Consider Promoter Funding?

• Allows business promoters to borrow money against their owned shares
• Loan tenure of up to 1-2 years
• Excellent for business diversification
• Loans of up to Rs.1 crore and higher available

Understanding Business Loan Requirement With so many different types of loan options available, it can be tough for an enterprise to select one, especially if the business is new. Understand your loan requirement and the advantages of a business loan of different types to make the right decision.If you are unable to decide, discuss your requirements with your legal team or a reputed lender to clearly understand the differences between different types of loans and why a particular option would be the best fit for your business.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.