Corporate Finance – Types of Loans Available for Small Business Organisations

Small business organizations in India have come a long way in contributing to the overall economic development of India. Today, a remarkable chunk of the country’s GDP comprises contributions from small and medium-sized enterprises. As the need for growth and expansion among the small and medium-sized enterprises grows, they also need additional financing to stay on the course of development. In this scenario, the availability of different types of corporate finance comes to the rescue of SMEs.

Loans and advances under corporate funding are provided under various government-backed schemes as well as through the aegis of various lending institutions. Let’s explore the types of corporate funding options businesses can secure to fund their increasing financing needs.

Term Loans for Businesses (Secured or Unsecured)

Term loans are provided by financial institutions as both secured and unsecured advances with varying conditions of lending. Unsecured term loans are usually financing options that come with a shorter tenure and require businesses to meet simple criteria to be eligible for the funding. However, the financing quantum is sufficient to meet big-ticket expenses and can be repaid without any risk of asset collateralization.

In the case of secured term loans such as loans against property for businesses, the financing quantum is much higher than unsecured business loans. Simultaneously, the repayment tenure is also extended to a long term, with flexibility in repayment. Interest rates on secured term loans for business are usually low, making funding affordable.

Both these types of terms loans prove as a useful source of corporate finance as they can be utilized for any business financing need without any restriction.

Working Capital Loan

A working capital loan is designed to fulfill the operating financing needs of a business required on a day-to-day basis. These loans usually come with a short tenure and require a business to meet minimum criteria. The quick and convenient loan processing involved also ensures instant access to funds in case a business needs additional financing during an emergency or a seasonal increase in demand.

Invoice Discounting

Invoice discounting is a financing arrangement that allows you to leverage your business’s unpaid invoices to raise funds. It is a short-term funding option and is usually availed to fulfill daily cash flow requirements and to bridge the financing gap between invoice issue and payment due date.

Machinery Loan

These are customized secured loan options design to fulfill the machinery purchase or leasing requirements of a business. As high-value loan options, they bring sufficient financing for advanced machinery purchase or up-gradation against nominal terms of the loan.

Medical Equipment Loan

Just like any business setup, a healthcare facility stands in equal need of additional financing to improve its medical care services. Healthcare centers can thus improve their service discharge by upgrading to or installing new medical equipment and hiring skilled workers to operate them with the help of a medical equipment loan.

Businesses can also avail tailored funding to meet their acquisition and expansion financing needs.

Apart from these funding options, corporate finance can also include owner’s capital introduced via shares, partnership capital, etc. Financing availed through loans and advances, however, does not require ownership contribution and can be repaid only with interest and other charges as the cost of funding.