Everything You Need To Know About Commercial Loans

Last Updated: 14 Oct 2024

Commercial financing or commercial loan is an arrangement of funds between a financial institution and an enterprise owner. You can use the proceeds from the loan for anything right from paying off an existing debt or investing in new equipment. These loans are used by those businesses that cannot raise funds from angel investors or venture capitalists.

Did you know the total portfolio value of commercial loans increased by 93% between FY17 and FY21? Yes, you heard it right. In India, you can quickly get your company off the ground by fundraising through the commercial option. Thus, we will discuss the commercial loan in great detail in this article, so read on.

How does a commercial loan work?

Banks give commercial loans to help businesses pay for day-to-day operations and new equipment. Lenders of such loans typically adhere to a standard set of criteria and terms and conditions.

The maximum allowed time to make payments is likewise set in stone. Commercial financing functions similarly to conventional business loans in most cases. This means the loan amount and interest are due within a certain period.

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Commercial Loan Types

Different commercial loan types in India include Term Loans, bank overdrafts, SME credit cards, collateral-free SME loans, and letters of credit.

Loans for commercial vehicle

Banks grant this commercial loan to businesses looking to purchase commercial vehicles, temp travellers, trucks, and buses. Within 1 to 5 five years you can repay this loan.

Credit Card (SME)

Village industries, tiny units and retail traders are liable to get the SME credit card. Using this card, you can utilize the funds to meet the credit requirements of your business. For instance, you can purchase a shop. This commercial loan can be repaid between 3 to 5 years.

Term Loans

A term loan is the most common form of commercial loan. They are approved for a fixed period, within which you must repay the amount with interest. This commercial loan is divided into long-term (above three years), medium-term (between 1- 3 years), and short-term loans. (less than 12 months)

Process of commercial loan

Applying for a commercial loan is similar to applying for a regular loan. You have to meet the eligibility criteria and complete all the necessary documentation before the disbursal of the loan.

Eligibility of commercial loans

• Different companies offering commercial loans have their requirements before granting the loan. The following are the most basic requirements.
• You must be an Indian national aged between 21 and 65 years.
• Your company must be in action for over a year.
• A commercial loan is available to partnership firms, private and public limited companies, besides self-employed individuals.

Required documents for approval of loan application process

• You must carry a copy of your PAN card and an application form which has been duly filled.
• Carry proof of business continuity like establishment certificates, sales tax certificates and trade licenses.
• Bring along your income proof, including account statements, ITR, balance sheet, and audited P and L statements.
• Be prepared to carry a few more critical documents as requested by the lender.

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Conclusion

A commercial loan is like a company loan. Make sure you meet all of the criteria for this loan before applying, and shop around for business loan interest rates in India to find the best deal.

Frequently Asked Questions

Is it beneficial to take a commercial loan?

Yes, it is beneficial to take a commercial loan because you can quickly get the money you require to expand your business. Also, the application process to get this loan is much simpler than traditional loans.

How many kinds of commercial loans are there?

Commercial loans comprise leasing, credit letters, bank overdraft facilities, and term loans.