The ghastly $1.8 billion fraud detected in a Mumbai branch of Punjab National Bank has revealed the importance of sanctions in granting business loans. Nirav Modi, billionaire diamond merchant, who is in the heart of the matter has defrauded Punjab National Bank of a massive Rs 11,400 crore, making it one of the biggest banking frauds in India.
The fraud comes at a time when the banking system is already crippling under the weight of non-performing assets. Nirav Modi, who fled the country and is absconding, is not the only defaulter. In 2017, the Reserve Bank of India sent a list of 28 corporate defaulters who have pending loans to the National Company Law Tribunal. The list featured big names like Videocon Industries and Jaiprakash Associates with outstanding dues of nearly Rs 1 trillion. Companies like Orchid Pharma Ltd, Ruchi Soya Industries Ltd, Castex Technologies Ltd are among the other defaulters.
Videocon suffered heavy losses from its telecom business when its license was revoked within two years of operations due to the 2G scam. It also fell behind in the television business when Korean and Japanese brands entered the Indian market with cheaper prices and better technology. The two failed ventured resulted in a collective loss of over Rs 11,000 crores. To recover from the heavy losses, Videocon is planning to monetize a part of their land banks and reducing its stake in the general insurance venture. There is also a proposition of selling their oilfields at Indonesia ad Brazil, values at $12 billion.
Availing the right kind of business loan can save your business from plunging into heavy losses. For that, one must choose a loan that suits the requirements of the business. Loans help even in the expansion and growth of the business.
Take a look at the 4 main types of business loans:
1. Flexi Business Loan
Through this loan, one can avail an amount of up to Rs 30 lakh, depending on your financial needs. The advantage of opting for the flexi loan is that it allows you to withdraw money from the total loan amount in installments, as and when the need arises.
This type of loan is beneficial for businesses that peak during a certain time of the year. For example, a scarf or sweater manufacturing business would have more sale during winter as compared to the rest of the year. With a flexi business loan, you can withdraw the amount required to meet with increasing demands post-October. As the expenditure is less in the summer months, the withdrawal would be significantly less.
This loan allows total flexibility in terms of borrowing and repayment. One can also choose to pay the interest as a component of EMIs. Therefore, this loan is ideal for businesses with unpredictable needs. It will also keep the business’s monthly outflow to a minimum.
2. Working Capital Loan
This kind of loan comes with a collateral-free clause, a simple test for eligibility and immediate disbursal of the amount. Apart from the easy procedure to obtain the loan, it also provides the business-owner with funds to cover day-to-day expenses such as paying bills and inventory costs.
The working capital loan is gaining popularity for tackling financial needs such as salary payment, accounts and similar operations. This loan is not used for buying long-term assets.
This type of loan is beneficial for mostly manufacturing businesses, who supply goods to retailers. Retail sales take off during year-end or the holiday seasons, which means the manufacturing company has to start production in the summer months. Thus this loan is beneficial in the months that the output is less, and helps in payment of bills, salaries, etc.
The benefit of this loan is that it is mostly an unsecured loan, which means there is no need of collateral while availing the loan. However, a high credit score is required. The downside, however, is that any missed payments, or defaults affect the credit score of the business owner.
Machinery loans helps you buy, upgrade, repair or install machinery as per the requirements of the business. Additionally, it can also be used in training employees n how to use the machinery more effectively.
This loan doesn’t require a collateral and has transparent policies with no hidden clauses. It also gives you access to funds through a flexi loan facility if the need arises. Some financial institutions offer a loan of up to Rs 30 lakh while others have an upper limit of Rs 10 crore.
The process to obtain a machinery loan is fairly simple, with minimum documentation. From simple handlooms to bigger machines to auxiliary equipment like industrial irons, the loan covers the cost of all machines, whether it is for day-to-day or specialized tasks.
4. Business Term Loan
This is the most traditional type of loan where the borrower receives a lump sum from the lender and is paid back in installments over a certain period of time. Such loans are availed to make long-term business investments such as new technology, fixed assets and additional staff.
A business term loan, unlike other term loans, is unsecured, thus eliminating the need for a collateral. The loan is packed with other benefits such as fast disbursal, a simple eligibility criteria and a nominal I interest rate. An amount of up to Rs 30 lakh can be borrowed through this loan. The loan has a maturity period of 10 years.