Business Financing: Exploring the Best Fit for Your Needs

Running a small business in India comes with many challenges, and managing money is one of the biggest among them. Whether you want to grow your enterprise, buy new equipment, or cover daily expenses, having enough capital is essential. If you don’t have sufficient funds, exploring alternative financing options—like business loans—can be a practical solution. Access to timely funding can make all the difference between seizing an opportunity and missing out. 

What are secured and unsecured business loans?

When you apply for a business loan, lenders usually offer you two main types of credit: secured and unsecured loans. Each type comes with its own benefits and risks. Understanding the differences can help you choose the right option for your business needs.

Secured loans

In a secured loan, you pledge the lender something valuable as collateral, like your property, machinery, or other assets. If you’re unable to repay the loan, the creditor has the right to seize that asset to recover the money. Here’s what you need to know before applying for this loan:

• You can get larger loan amounts
• Interest rates are usually lower
• You get more time to repay
• There’s a risk of losing the asset if you can’t repay on time

Unsecured loans

In an unsecured business loan, you don’t need to offer any asset as security. The lender gives you the loan based on your credit score, business income, and financial history. Know these things before you apply for this loan type:

• Easier and faster to get, since there’s no collateral check
• You won’t lose any assets if you can’t repay (though your credit score will suffer)
• Loan amounts may be smaller
• Interest rates are a bit higher since the lender is taking more risk

Types of business loans

MSMEs often require financial support to manage operations, expand services, or invest in infrastructure. Understanding the different types of business loans available is essential to choosing the right financing solution. Below is an overview of the most common loan options tailored for MSMEs in India.

Term loans

A term loan is one of the most common types of business financing. You borrow a fixed amount from the lender and repay it in monthly instalments over a specific time. This loan is suitable for long-term investments. Depending on the lender, it can be either secured or unsecured. The interest rate and loan amount depend on your business’s financial health.

• Best For: Business expansion, buying property or equipment 
• Eligibility: Based on business stability and repayment capacity
• Collateral: Optional (can be secured or unsecured)

Working capital loan

Running a business means you constantly need funds for day-to-day operations, whether it’s for paying employee salaries, restocking inventory, or handling rent and utility bills. That’s where a working capital loan helps. This type of credit provides short-term support to keep your business running smoothly, especially during low-revenue periods.

• Best for: Short-term money needs
• Eligibility: Suitable for businesses with regular income and expenses
• Collateral: Not required

Invoice financing 

Sometimes, you provide services or goods to your customers, but payments get delayed. Instead of waiting, you can use those unpaid invoices to get a loan. In invoice financing, the lender gives you a percentage of the invoice amount upfront. Once the customer pays, you can return the loan with a small fee. This improves cash flow and helps avoid delays in your operations.

• Best for: Businesses with long payment cycles
• Eligibility: Requires unpaid invoices from reliable customers
• Collateral: Not required – invoices act as security

Business line of credit

This works like an overdraft facility. The lender gives you access to a credit limit, and you can borrow any amount within that as needed. You only pay interest on the amount you use, not the entire limit.

• Best for: Managing unexpected expenses or seasonal needs
• Eligibility: Businesses with consistent financial records
• Collateral: Not required

Equipment financing 

If your business depends on machines, tools, or vehicles, you may need funds to buy or upgrade them. Equipment financing is a loan specifically for this purpose. The machinery you purchase acts as collateral for the loan. Since the asset secures the credit, lenders often offer favourable terms like lower interest rates and longer repayment periods.

• Best for: Manufacturing or production-based businesses
• Eligibility: Businesses with a need for new machinery
• Collateral: Required

Business credit cards

A business credit card works just like a personal credit card but is used only for business-related expenses. It helps you make quick payments for small purchases, travel, utility bills, and more. It also helps track expenses separately from personal spending, which is useful for accounting and tax purposes. 

• Best for: Managing daily or monthly business spending
• Eligibility: Based on the business owner’s credit score
• Collateral: Not required

How to choose the right loan?

With so many loan options available, it can be difficult to decide which one is the best fit for your business. However, asking yourself a few simple questions can help you make the right choice.

Here’s what to consider before applying for a business loan:

1. Why do you need the loan?

Start by identifying the purpose. Is it for daily operations, business expansion, buying equipment, or managing cash flow gaps? The reason will help you choose between short-term or long-term loans.

2. Do you have assets to offer as security?

If you own property, machinery, or other assets, you can consider a secured loan with better terms. If not, opt for an unsecured loan that doesn’t require collateral.

3. How quickly do you need the funds?

Some types of unsecured business loans like working capital loans or merchant cash advances are usually processed faster. If you need money urgently, these may be better options.

4. Can your business afford the repayments?

Check your income, cash flow, and monthly expenses. Make sure you can handle the loan EMI comfortably without affecting your operations.

5. What’s your credit score and business history?

Lenders often look at your credit history and financial records. A strong credit score increases your chances of approval and may help you get better interest rates.

Wrapping Up

Finding the right business loan can feel challenging, but once you understand your needs and the options available, the decision becomes much easier. Whether you’re looking for a quick unsecured business loan or a long-term secured loan, it’s important to choose a financing option that supports your business goals. At TallyCapital, we’re here to make that decision simpler for you. We partner with trusted financial institutions to offer MSMEs customised loan solutions that are fast, flexible, and reliable.

Ready to take the next step? Let TallyCapital help you grow your business today!