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✓Minimal Documentation ✓Flexible Repayment ✓Collateral Free Loan | Apply for Business Loan Now!

What is a Commercial Loan

A commercial loan is essentially a form of financing for those businesses that want to increase their working capital requirements, acquire new machinery (or upgrade the old), build new commercial infrastructure, or meet operational costs, among others. These are usually short-term loans and can be both secured and unsecured. An entrepreneur who is applying for such a loan will need to furnish the following:

  • Financial documents of the entity

  • Proof of establishment, and

  • Business vintage proof

Key Features of Commercial Loans

  • Commercial loans are provided to business entities only.

  • Organisations can utilise them to handle financial expenses like the purchase of equipment, machinery, inventory, office furniture, vehicles for operations, construction, and renovation of offices, among others.

  • Commercial loans can be secured or unsecured. If the entrepreneur goes for a secured loan, the interest rates will be lower, mirroring the level of risk attached. Borrowers of unsecured business loans pay a slightly higher interest rate as there is a greater chance of non-recovery of the borrowed amount. If a commercial vehicle or asset loan is taken, the object purchased from the loan amount will theoretically belong to the lender until the loan is repaid.

  • Commercial loans are paid off in short periods, usually between 30 days to a year. They are sometimes given a longer tenure, too, depending on the lender. If the commercial loan amount is high, institutional borrowers may get up to 4 to 5 years to repay it.

  • Commercial loans can cover revolving lines of credit short-term and long-term debts, among others.

  • These loans are offered at fixed or floating interest rates.

  • Commercial loans can be repaid through Standing Instructions (SI), post-dated cheques (PDCs), and Electronic Clearing Service (ECS), among others.

  • Typically, when one makes the last commercial loan payment, the asset for which the lender assumed ownership would be returned to the borrower, thus revoking the former’s lien on the company asset or vehicle.

Eligibility for Commercial Loans

  • Partnerships, sole proprietorships, public and private limited companies, self-employed professionals, and non-professionals can apply for Indian commercial loans.

  • The business entity that needs a commercial loan should have a good turnover, the requirement of which will differ from lender to lender.

  • Each loan applicant should meet the minimum annual corporate income requirement.

  • The firm should have been making profits for a certain amount of years as specified by the lender.

  • The firm interested in a commercial loan should have been in business for a certain amount of years, as stated by the lender.

  • The minimum age criterion for an individual applying on behalf of their firm is ideally 21, and the maximum is 65; however, this may vary from lender to lender.

Commercial Loan Interest Rate and Charges

A company or a self-employed individual must pay certain fees while applying for a commercial loan. Apart from the interest rate, the loan applicant will/might also have to pay the following:

  • Processing fee

  • Amortisation fee

  • Stamp duty

  • Cheque-swapping fee

  • Legal or incidental charges

  • Cheque bouncing charges

  • Late payment charges and/or pre-payment charges, among others

It must be noted that the lender will mention the applicable charges at the time of the loan application. To understand these charges, one can read their commercial loan policy document(s). Take a look at the table below:

Interest Rate

18% to 27% per annum*

Processing fee (one-time)

2% to 3% of the loan amount

Loan Repayment tenure

12 to 60 months

Pre/Fore-closure fee

Nil

Eligibility Criteria in terms of Turnover

> ₹90,000 turnover for 3 months

Loan Amount

Up to ₹75 Lakhs

Schedule of Repayment

Bi-weekly or monthly

Disclaimer: Commercial loan interest rates are subject to constant change. The reader is advised to check the current interest rates with the lending institution itself before applying for credit. 

How to Apply for Commercial Loan 

Applying for a commercial loan through Finserv MARKETS is as simple as creating an email account. Once the user has checked all the pointers against the eligibility criteria, they can fill in their contact details and proceed by entering their personal and professional details and choose from one of the displayed offers.

 

Documents Required for Loan Application

While applying for a commercial loan, a firm or individual must compulsorily submit certain documents to the lender, namely:

 

  • PAN card of the firm, company, and the partners

  • GST/VAT statements for a certain period

  • Balance sheet(s)

  • Profit and loss statements from the previous years

  • Proof of business continuation; the company can submit a trade license, sales tax certificate, income tax returns, and establishment certificates pertaining to the same

  • A certified copy of the Partnership Deed

  • Declaration of a sole proprietorship

  • Resolution of the board

  • Certified copies of the Articles and the Memorandum of Association 

Types of Commercial Loans

Commercial business loans can also be classified based on the facilities and benefits they offer:

  • Bank Overdraft Facility: This facility is a short-term loan given to those who own a current account with the lender. Here, borrowers can withdraw more than what is in their bank account. It is repaid when the borrower deposits the loan amount into the bank account. It also allows a commercial enterprise to withdraw greater funds than the funds available in the firm’s account to service immediate cash needs.

  • Letter of Credit: A Letter of Credit is a document that a registered lender provides to a customer or trading party located in a foreign country. It is issued to the seller, provided that the firm, individual, or entity furnishes certain documents that confirm that payments will be made parallel to the delivery of goods.

  • Bank Guarantee: A bank guarantee is essentially a type of financial backing offered by a lending institution to someone who has an account with them. It means that the lender guarantees a debtor’s liability. To put it another way, if an individual fails to settle a debt, their bank will cover it.

  • Lease Finance: This is a kind of secured loan that the financier offers without the customer relinquishing their rights over the asset kept as collateral.

  • SME Collateral-Free Loan: As the name itself indicates, these loans are made available for collateral-free Small and Medium Enterprises (SMEs). While small retailers are not eligible for such forms of loans, they can be availed by start-up SMEs.

  • Construction Equipment Loan: Construction equipment loans are secured loans. Here, the purchased equipment itself is the collateral, and the repayment period is usually 12 to 60 months. These forms of advances are commonly used to procure equipment such as excavators, cranes, loaders, and other forms of technologically high-end equipment.

  • Commercial Vehicle Loans: These are generally made available to companies that have more than two years of business experience and have dedicated customers, transporters and own two commercial vehicles at the very least.

  • SME Credit Card: This can be availed as cash credit or a term loan up to a sum of ₹10 Lakhs. The repayment period for such term loans is five years, and the cash credit can be repaid over ten years. SME credit card loans are made available commonly for small retailers and business enterprises of a smaller scale.