Commercial Loan – A complete tour of business loans

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The Indian government has run several new yet beneficial schemes for the Indian residents; business loans are no exception. If you ever dreamt of organising your own entity but backstepped due to lack of capital, it’s your golden opportunity to add a wing to your dream by opting for a commercial loan. 

What is a commercial/business loan?

It’s a loan scheme offered by a financial institution and banks to a new business firm, which a business owner can typically use to finance the purchase of long-term assets or to cover day-to-day operating expenses.

An Overview of Commercial Loans:

Due to regulatory restrictions, associated fees, and the time required to get cash, small and mid-sized enterprises cannot access stock and credit markets for funding. As a result, SME’s rely on debt products like commercial loans and lines of credit.

Commercial loans come with reasonable commercial loan interest rates and can be used for anything a business needs, such as purchasing assets, purchasing supplies, covering daily operations expenditures, paying payroll, and so on. The business must mention the commercial loan during the lending process.

Types of Commercial Loans:

  • Term Loan
  • Bank Overdraft Facility
  • Letter of Credit
  • Bank Guarantee
  • Lease Finance
  • SME Collateral free loan
  • Construction Equipment loans
  • SME Credit Card
  • Commercial Vehicle Loans

Term Loan:

Term loan is giving for used commercial purpose and it’s return in set timing of installment. It usually has a guaranteed return with a monthly or quarterly payment plan and a specified maturity date. Term loans can be secured (i.e. some collateral is offered) or unsecured (i.e. no collateral is provided).

Credit Letters:

A bank guarantee is a document given by a commercial bank that guarantees payment to a seller if the bank receives specific documentation. As long as the services are fulfilled, the payment shall be done.

Guarantee from a bank:

A bank contract is a ‘letter of guarantee’ given by the bank on behalf of a customer to a third-party provider (the beneficiary) promising that the bank would pay the third party a specific amount of money during the letter of presupposes validity term upon presentation of the guarantee. A letter of guarantee usually specifies the circumstances under which the promise can be used.

Bank Overdraft Facility:

A bank overdraft facility allows a corporation to withdraw money over what is available in its bank account. The commercial loan rates is charged on agreed overdrafts limits.

Collateral-free financing for SMEs:

This small business loan does not require collateral or a third-party assurance. However, the buyer is not bind to furnish collateral to obtain the loan. It is accessible to SMEs in start-up and existing phases to help with working capital, machine purchases, and expansion plans.

Loans for Construction Equipment:

Construction equipment opportunities are loans for new and second-hand equipment such as shovels, dump loaders, cranes, and other high-end heavy machinery.

Loans for Commercial Vehicles:

Commercial vehicle loans allow borrowers to buy trucks, buses, tippers, and other delivery vans. Depending on the contract and the nature of payment capabilities, these loans can last anywhere from 12 to 60 months.

Credit Card for Small Businesses:

An SME Credit Card is a loan that you can take out in cash credit or a term loan form, with a credit limit of up to ten lakhs.

Small industrial units, small retail dealers, small business businesses, and transport traders – all can benefit from this lending arrangement. Besides, term Loans have a 5-year repayment duration, while Cash Credit has a 3-year repayment schedule.

Commercial loan Interest Rates:

Starting your own business might be difficult if you haven’t planned funds well. Taking SME Business loans from banks or NBFCs (Non-Banking Financial Corporations) in India is one approach to generate cash for your company.

The interest rate on a business loan in India is 16.6%. It often ranges from 11.2 per cent to 22 per cent.

The interest rate on a business loan in India may vary depending on several other criteria, including the type of loan.

  • Profile of the Applicant
  • credit rating
  • Amount needed for a loan
  • Repayment period
  • A business strategy
  • Years that a company has been in business
  • Profits for the year

We hope this content about a commercial loan will help you obtain the perfect loan scheme for your business. So, you can smoothly fund your business requirements and never have to look back for business establishment.

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