Commercial Loans

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

1. Commercial loans are provided to a business entity and not to individual consumers.
2. They can be utilised by organisations to handle financial expenses such as purchasing equipment, buying and installing machinery, purchasing inventory, buying office furniture, purchasing vehicles for company purpose, construction, renovation of office location(s), etc.
3. Commercial loans can be secured or unsecured in nature. If an organisation chooses a secured commercial loan, then they will have to provide a collateral or security to the lender. In this case, the interest rates will be lower as the level of risk is low for the lender. If a company wants to apply for an unsecured commercial loan, then the rate of interest will be slightly higher as the lender will face a higher level of risk since there is no security involved in this loan agreement. If you take a commercial vehicle or asset loan, this particular vehicle or asset will be hypothecated to your lender.
4. Commercial loans are provided for a short period. This can range from 30 days to 1 year. It is sometimes given for a longer tenure too. This will depend on the lender. When you apply for commercial equipment loans or commercial construction loans, you can choose a longer tenure for up to 4 or 5 years.
5. Commercial loans can cover revolving lines of credit, short-term debt, long-term debt, etc.
6. Commercial loans are offered at fixed interest rates or floating interest rates. If you have a fixed interest rate, your interest will remain fixed throughout the tenure. If you have a floating interest rate, your interest will fluctuate with changes in the market.
7. You can repay a commercial loan through post-dated cheques, Electronic Clearing Service (ECS), Standing Instruction (SI), etc.
8. Typically, when you make the last payment of your commercial loan, the asset that is hypothecated with your lender will now be in your name and you can revoke the lien of the lender on your company's vehicle or asset.
9. Commercial loans also help companies in purchasing supplies, buying raw materials, funding production processes, handling payroll needs, etc.
10. Commercial loans can be taken for purchasing real estate properties too. These loans will be commercial mortgage loans that help a firm in purchasing commercial properties.
11. Commercial loans are sometimes provided to self-employed professionals or non-professionals so that they can purchase property or any other asset for their firm's requirements. These individual loan applicants can be lawyers, doctors, engineers, architects, consultants, contractors, etc. and they will have to apply on behalf of their firm.
12. These loans can be utilised for expanding company operations too.