When the existing businesses or industrial houses need to generate funds or working capital, they apply for a corporate loan. The fund made available through this loan is used for smooth functioning and takes care of short-term as well as long-term expenses. For instance, it could be used to meet the daily expenses, fund working capital, upgrade machinery, and for any other expansion-related activities.
Corporate loans can either be secured or unsecured. Secured loans demand a business asset as collateral as a part of security. In case of non-payment of the loan, the lender can seize the asset to claim the unpaid amount. If you apply for secured loans, you can benefit from a lower rate of interest, higher borrowing limits and longer repayment terms compared to unsecured loans.
Unsecured loans are generally given for immediate fund requirements by businesses. No form of collateral or security is required by financial institutions. However, to avail unsecured loans, businesses need to have high credit ratings.
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Types of Corporate Loans
There are various types of corporate loans offered by the banks; you can choose the suitable one depending upon your requirement.
1. Term Loan
The funds obtained by term loans can be used for capital infusion, purchasing or renovating the property, buying new machinery, or upgrading the technology. Term loan interest rates may be fixed or floating and have a fixed repayment schedule.
2. Loan Against Securities
If you have invested in financial securities like mutual funds, insurance policies, bonds, Demat shares, fixed maturity plans, and/or exchange-traded funds, you can raise funds for your business by pledging securities. Tenure of loan against securities is renewed every 12 months.
3. Letter of Credit Facility and Bank Guarantee
It is a type of credit facility, wherein the bank will provide a letter to the seller guaranteeing that you will be making the payment on time for the expected amount. However, if you are unable to pay for the purchase made, the bank will cover the outstanding payment on certain conditions.
4. Cash Credit Facility
You can avail cash credit facility by pledging your business assets such as receivables or inventory. The limit on cash credit withdrawal is usually 70% to 80% of the value of the pledged asset, and the tenure is renewed every 12 months.
5. Overdraft Facility
The facility of bank overdraft allows you to debit your current account below zero, up to a specified limit. Your overdraft limit is predefined according to the securities pledged. The interest is charged only on the amount utilized. However, the bank reserves the right to ask you to repay the amount at short notice.
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Corporate Loan Interest Rate
The interest rate shall vary from bank to bank and shall depend on the business requirements and financial stability of the organization, along with the company’s credit score, loan repayment history, debt, if any, etc.
Eligibility Criteria for Corporate Loan
- As a loan applicant, you need to have an established business for at least 5 years
- Business or enterprise should be in profit for the last 2 years
- The company should have maintained a good CIBIL/credit score, along with a record of successful business
- In case, you have applied for a loan in the past, the bank will check your records and repayment status before sanctioning the loan
- The applicant with no previous defaults with any financial institution
- Indian citizen with no past criminal record
Documents Required for Loan Application
- Business plan
- Duly filled application form with passport-sized photographs
- Business and applicant’s PAN card
- Identity proof – Passport, PAN card, Voter’s ID, Driving license
- Address proof – Electricity bill, Water Bill, Ration card, trade license, etc.
- Statement of Accounts from the bank
- Business Address and Vintage proofs
- Records and balance sheets of past 3 years
- Income Tax Certificate and Sales Tax Returns
- Company establishment certificate
- Registrations and Licenses
- Any other document required by the lender
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How to Apply for a Corporate Loan?
Various banks and other financial institutions offer Corporate Loans. You can either apply for the corporate business loan online or offline, depending upon your convenience and availability of resources. If you wish to apply online, you can go to the official website of the chosen bank/lender and fill the application form available online.
You can also visit the nearest branch of the lender, and meet the concerned representative. In both the cases, your application will be considered, if you meet the eligibility criteria and submit all the required documents.
12 Top Leading Banks/NBFCs that offer Corporate Loan
|State Bank of India (SBI)|
|Bank of Baroda (BOB)|
|Punjab National Bank (PNB)|
|United Bank of India|
|IDFC First Bank|
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Q. What does the bank look at before giving a corporate loan?
Ans. The Bank considers various factors before sanctioning corporate loans, such as financial stability, company’s CIBIL score/credit rating, business financials, business tenure, location, size, nature of business, etc.
Q. Which bank gives the lowest interest rate for business loans?
Ans. HDFC bank offers business loans at lowest interest rate of 15% onwards, whereas SME loans at lowest interest rates are offered by SBI.