IT companies, like other businesses, also require loans to meet their daily needs and future planning. Usually, businesses need additional funds mostly in the seminal phase of their development. In this blog, we will discuss different types of loans that are available to IT companies.

In India, IT companies can obtain 8 types of business loans. These are:

• Bill/Invoice Discounting
• Equipment Finance for Machinery Loan
• Letter of Credit
• Loans under Government Schemes
• Overdraft Facility
• POS Loans or Merchant Cash Advance
• Term Loan (Short and Long-Term)
• Working Capital Loan
• Bill/Invoice Discounting

Bill or Invoice Discounting refers to a funding facility which allows the seller to receive an amount at discounted rates in advance from the lender. This requires buyers to contribute to revenue increase for the financial institution, in form of interest payment and monthly fee.

Equipment Finance or Machinery Loan

This funding option allows borrowers to buy new machinery/equipment or upgrade the existing one. This type of loan is mainly used by large enterprises or companies in the manufacturing sector. The borrowers are allowed to enjoy tax benefits.

Letter of Credit

This is a kind of credit limit mostly used in trading businesses. Banks or lenders offer a funding guarantee to companies dealing in international trade. Entrepreneurs can utilise Letter of Credit for both import and export. 

Loans under Govt. Schemes

The Government of India has introduced a variety of loan schemes for women entrepreneurs, MSMEs, and companies from service, trading and manufacturing sectors. Many financial institutions including Public and Private Sector Banks, Regional Rural Banks, Small Finance Banks, Microfinance Institutions etc. provide loans under government schemes. 

Overdraft Facility

This type of funding is provided by a bank to its account holder so that the person can withdraw from his/her account, regardless of zero account balance. The interest rate applies to only the utilised amount within the sanctioned limit, on a day-to-day basis.

The sanction on the credit limit is subjected to the account holder’s credit history, relationship with the bank, loan repayment history (if any), cash flows etc. Revision of the overdraft limit is performed every year. There is no hard and fast rule regarding the way of using the overdraft limit as long as interest is timely paid.

An overdraft facility is provided against securities/collateral, especially in terms of fixed deposits with the bank.

Point-of-Sale (POS) Loans

POS Loans are also called Merchant Cash Advance. The mechanism requires an enterprise to pay a hefty amount in advance to suppliers via his/her daily/future debit/credit card transactions. Several times, merchants go for POS loans to overcome the short-term cash crunch.

Working Capital Gains

Working capital gains are utilised by individuals, business owners, MSMEs and startups to support their daily requirements and expansion planning, buy raw materials, improve business cash flow, pay salaries, hire staff etc.

The lender specifies a limit for the business to obtain a loan and the loan can be utilised only for the promised purposes.

Term Loan

A borrower is required to pay off term loans in regular instalments over a certain period of time. The term-loan is categorised into 3 types - short-term, long-term and intermediary term loans.

Conclusion

Looking for financial assistance to grow your IT business? Contact DAILYFINSERV today for expert guidance and tailored solutions. Call us at +91 7980522404 or email us at support@dailyfinserv.com to explore your options and take your business to the next level. Let's build your future together.