For established businesses and industries, growth is inevitable. A good businessperson always aims to grow his/her business, commercially as well as geographically to maximize profits, year after year. However, there are times when even flourishing business houses lack funds to fulfill basic requirements. For them, corporate loans are one of the best alternatives to meet business needs and solve financial worries
Like individual loans, corporate loan interest rates are based on risk and market conditions and are often changed by the lender based on these factors.
What is Corporate Loan?
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 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 security is required to be mortgaged. However, to avail unsecured loans, you need to have high credit ratings.
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.
The funds obtained by term loan can be used for capital infusion, purchasing or renovating the property, and buying new machinery or upgrading the technology. Term loan interest rates may be fixed or floating and has a fixed repayment schedule. Maximum tenure for a secured loan is 3 years and for unsecured loan, it is 15 years.
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.
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.
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 pledged asset, and the tenure is renewed every 12 months.
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.
How to Apply?
Various banks and other financial institutions offer a corporate loan. 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.
However, if you do not have access to the internet, you can 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 the required documents.
Eligibility Criteria for Corporate Loan
- As a loan applicant, you need to have an established business for at least 5 years.
- The company should have made profit in the last 2 years.
- The company should have a strong credit rating, 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.
Documents Required for Corporate Loan
- Identity proof – passport, PAN card, voter’s ID, driving license
- Address proof – electricity bill, ration card, trade license, etc.
- Statement of Accounts from the bank
- Records and balance sheets of past 3 years
- Income Tax Certificate
Banks Known to Offer Corporate Loan
|Bank||Minimum Loan Amount||Maximum Loan Amount||Rate of Interest||Processing Fees|
|HSBC Bank||–||10 Cr||As per Base Rate||–|
|ICICI Bank||1 lakh||40 lakh||15.50%||0.99% – 2%|
|Kotak Mahindra Bank||3 lakh||75 lakh||16%||Upto 2%|
|HDFC Bank||–||15 lakh||15.25%||0.99%|
|Union Bank of India||–||25 Cr||9.50% to 14.80%||–|