What you need to know about business loans before scaling up your business

Avisha had always been a home baker, who sold a fixed number of items to local stores. But now the orders were pouring in. So, she decided to rent a shop with a kitchen that would enable her to take her venture to the next level. She thought of applying for a business loan. But she did not know whether she needed a professional loan, an overdraft, or a working capital loan. Avisha, being a novice, was clueless. That was when her father stepped in, and helped her understand the different kinds of business loans. This made it easier for her to choose the right loan.
If you are planning to take a business loan to scale up your business, the first thing you should know is that there are different types of loans available. Knowing more about these can help you make an informed decision.
Types of business loans
There are two types of business loans- professional loans and trade loans. Here is a closer look at each.
Trade loans
Trade loans are the more common type of business loans, and all kinds of businesses can avail them. These loans are further categorised into three kinds. They are:

• Term loans: This type involves a fixed loan amount and is taken for a specific period of time. You repay the loan in equated monthly instalments (EMIs). This is the simplest and most common type of business loan in India.
• Overdraft: An overdraft is a secured business loan where a fixed deposit is used as collateral. You get the loan if you have a good credit score. You can use the loan for your professional as well as personal needs.
• Working capital loan: This loan is like an overdraft. You can use the amount for your professional needs. However, bear in mind that your credit score is vital to get a working capital loan.

Professional loans
Sole proprietors opt for professional loans. This loan type is suitable for doctors and lawyers who run their own practices. The trust shared between the borrower and the lender plays an important role here. A professional loan is given based on good faith. If the borrower took a loan in the past and paid it back, he will get another loan as well.
Professional loans are long-term business loans. They are usually taken for about eight years. Government bond certificates, NSCs, insurance plans, and other investments are collaterals in professional loans.
The bottom line
It is always a good idea to be prepared when you apply for a business loan. The lender gives the loan with the intention of getting it back. So, do your research and prepare a good business plan. Decide on a good repayment plan and convince the lender of your capability to handle the loan. This will put you on the right path. You will also be closer to your dream of achieving newer heights as a businessperson.