How to get a commercial business loan?

 

Commercial business loans or commercial loans are loans provided by a lending institution to a business for commercial purposes. Usually, these loans are taken to cover capital expenses or operational costs of a business. Line of credit, term loans for property or machinery, working capital loans, etc., come under the category of commercial loans. These loans can be unsecured or secured business loans.

Commercial loans vs business loans

The difference between commercial and business loans is that commercial loans sanction large loan amounts while business loans are for comparatively smaller amounts. There are also tax benefits of availing business loans.

Businesses opt for commercial loans to cover a large expenditure like purchase of commercial property, importing a new machine, starting a new product line, etc.

Commercial loans are sanctioned by banks, MFIs, NBFCs, and other non-profit lenders. These lending institutions have strict eligibility criteria when dealing with commercial loan applications. Banks provide lower interest rates for these loans to give businesses access to better credit options. Large loans are also a way to earn significant revenue for lending institutions.

Types of commercial loans

There are different varieties of commercial loans extended by various lending institutions. These are loan products that will have specific conditions which differ according to the lenders. Here are some of the common types of commercial loans found in India:

• Term loan

Term loans are borrowed for business purposes and need to be paid back within the specified period. These loans have a fixed interest rate, monthly or quarterly repayment period and a set maturity date. There are three types of term loans:

• Short term loan: Taken to finance temporary business requirements. The repayment period is less than a year.
• Medium term loan: Taken to fund a new product line or upgrade existing machinery. The repayment period is between one to three years.
• Long term loan: Taken to fund a large expansion project, purchase of commercial property, etc. The repayment period is over 3 years.

• MSME loan

These are commercial small business loans that are given to registered MSMEs. Lending institutions often extend unsecured loans to small businesses to help them get over the collateral challenges and get the cash injection needed. These loans have lower interest rates compared to commercial business loans. MSME loan application is usually simple and straightforward, though basic documents are required.

Another fact about commercial loan vs small business loan would be the repayment period is longer for the former.

• Overdraft account

Banks allow overdraft account holders to withdraw more money than the existing balance in your account. This means that if your overdraft account balance is zero you would still be able to withdraw some money.

For example, you want to withdraw ₹30,000 but your account only has a balance of ₹23200. Since it is an overdraft account you will be able to take out ₹30000. The bank is extending the ₹6800 that you withdrew extra as credit at an interest.

There is a limit placed on the amount of credit you can take from the overdraft account. Along with interest, banks also charge an overdraft fee for the transaction.

Check with your lending institution first and depending on your requirements, choose between a business loan and bank overdraft.

• Machinery loan

New machinery purchases are often expensive, and some companies import their machines, which adds up to the total cost of the machine. A machinery loan is specifically given out for the purchase of manufacturing machines like special purpose machines and other equipment like excavators, loading trucks, etc.

• Commercial vehicle loans

Businesses apply for commercial vehicle loans to fund buying vehicles like trucks, buses, containers and light commercial vehicles. The repayment period of such loans can be anywhere from 12 to 60 months.

Examples of commercial loans

Have a look at commercial loans NBFCs and banks of India are offering:

Tata Capital

• Working capital loan
• Equipment finance
• Term loan

SBI

• Deferred payment guarantees
• Foreign currency term loans/working capital loans
• Loans for acquisition of foreign companies by Indian companies under merger, acquisition or scheme of amalgamation
• Letter of Credit

ICICI

• Commercial vehicle loan
• Construction equipment loan

Eligibility for a commercial business loan

Commercial loan requirements vary from lender to lender. Commercial loans usually have strict eligibility criteria as they tend to be loans comprising large amounts. Here are some of the most common commercial loan eligibility criteria that the lending institutions will consider for sanctioning your loan application:

• Every applicant should meet the minimum annual income cutoff mandated by the lending institution.
• The company should have been operational for three or more years or as specified by the lender.
• The average annual turnover specified by the lender should be satisfied. The turnover requirement will differ from lender to lender.
• The firm should have been making profits for a certain period as specified by the lender.
• Partnership firms, sole proprietorship firms, public limited companies, private limited companies, and self-employed professionals are eligible to apply for commercial loans or business loans in India.
• The minimum age requirement is 21 years, and the maximum age requirement is 65 years for the loan applicant. This can change from lender to lender.

How to get a commercial business loan?

Commercial business loans can be availed from banks, MFIs, NBFCs, cooperative banks, etc. You can also try online lending platforms hosted by new age fintech companies. These platforms have a quick and easy loan disbursal process with relaxed eligibility requirements. The submission of relevant documents along with the loan application form can be done online. The loan approval and sanction time is typically just a few days when it comes to online lenders.

Platforms like Tata nexarc can help you avail a business loan of up to ₹30 lakhs for your business. We have partnered with trusted lenders and can provide a loan offer within 5 minutes for you to easily get finance for your business needs.