A commercial loan, as the name suggests, refers to a loan that is offered to a business by a financial institution. This type of loan can be utilised for commercial purposes. This loan is provided through a debt-based funding agreement between a business entity and a lender. Both banks and non-banking financial corporations (NBFCs) offer commercial loans to companies and firms. Commercial loans are not offered to individual loan applicants for personal reasons.
These loans help corporations meet their financial expenses for their various activities. Some of the expenditures include working capital expenditures, operating expenses, etc. Commercial loans are sometimes known as business loans too. These loans are typically offered for a short tenure. The tenure can range from 1 month to 1 year depending on the company’s requirements.
These commercial loans are very helpful to small businesses that may not have sufficient funds to take care of different financial requirements. Many small businesses may not be eligible to apply for regular loans due to eligibility criteria, high upfront fees and charges, and strict regulatory obstacles. Hence, small businesses have to rely on alternative debt products for financial assistance and these can be consumer credit, unsecured loans, commercial loans, a line of credit, term loans, etc.
In India, one can choose from business loans and business installment loans provided by banks and NBFCs.
Features of Commercial Loans
Eligibility Criteria for Commercial Loans
Documentation Process for Commercial Loans
While applying for a commercial loan, a firm or individual will have to compulsorily submit certain documents to the lender and they include:
Fees and Charges for Commercial Loans
While applying for a commercial loan, a company or a self-employed individual will have to pay certain fees and charges. Apart from paying the interest rate, the loan applicant may have to pay loan processing fee, amortisation fee, stamp duty, cheque swapping fee, legal or incidental charges, cheque bouncing charges, late payment charges, pre-payment charges, etc. The charges will be mentioned to you by your lender before you apply for the loan. You can view your commercial loan policy document for full information about the various fees and charges.
As a company, a commercial loan is a great financial instrument for meeting the various financial requirements extensively. While applying for a commercial loan, the organisation should prove that it has a regular, good cash flow. This will help the lender be confident that the borrower can repay the loan installments in a timely manner. In some scenarios, lenders may ask the loan applicant to take insurance for assets that have been purchased with the loan, especially if the assets are of high value.
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