1. Working Capital Loan: It is the most popular short-term financing option. It is meant to meet the working needs like the purchase of raw material, payment of wages and other administrative expenses, financing inventories, managing internal cash-flows, supporting supply chains, funding production and marketing operations. Most banks provide these against collaterals. Companies who borrow from banks are subjected to the discipline of maintenance of proper accounts and regular repayments of loans. They are subjected to periodical monitoring through a reporting structure of financial and other statements and also through analysis of cash flows routed through the banks.
2. Overdraft: The other short-term debt option is the overdraft facility, by way of which a company opens a current account with a bank and can overdraw money up to an agreed limit. In this case, you pay interest only for the time you use the money.
3. Factoring: The bank buys the customer’s account receivables in domestic and international trade, assuming the responsibility of collecting them from the party who owes money.
4. Commercial Papers (CPs): It is a debt instrument issued by companies at a discount on the face value. Banks, individuals and mutual funds usually buy commercial papers.
5. Term loans: Term loans are mostly taker to buy assets and grow business. These loans are term based, which may vary from three to ten years. The amount, the tenure and interest rates may vary depending upon the risk profile of the company. Term loans are either asset-backed or cash-flow backed. In the case of asset-backed term loans, lender institutions seek assets of the company as collaterals while issuing loans. In the case of cash-flow backed loans, banks carefully scrutinize the balance sheets of a company to study its cash-flow capability.
6. Syndicated loans: Syndicated loans are large capital loans raised by big corporations from a group of banks. These are aimed at acquiring domestic or international companies. In this case, one bank acts as a lead bank.
7. Project Finance: Large and long-term infrastructure projects require huge amounts amount of funding both in the form of debt and equity. In project financing, lenders (banks) rely on the assets created for the project as security and the cash-flow generated by the project as source of funds for repaying their dues. These projects include building of roads, dams; ports etc are sensitive to regulatory and political policies and tariffs.
8. Debentures: This is a long-term debt instrument issued by a company with the acknowledgement that it would repay the money at a certain rate of interest to the buyer. These are not shares, thus the buyer can stake no claim in the share of the company.
9. Inter-corporate deposits: This is a short-term help provided by one corporate with surplus funds to another in need of funds. The major disadvantage to lenders is that the money is locked in for the certain period of time.
10. Personal loans: Entrepreneurs also take personal loans from banks and financial institutions to fund their projects.