What Does a Commercial Loan Mean and How Businesses Can Benefit From It?

Commercial loans are a form of short-term, secured or unsecured financing. These are tailor-made for small and medium scale enterprises. It is often availed to acquire raw materials, upgrade the existing manufacturing equipment, etc. However, businesses can also fund large scale expenditures and support operational costs with the help of a commercial loan.

Shortage of funds is one of the foremost issues plaguing short and medium scale industries in India. These organisations operate with a significantly smaller capital than their large scale counterparts, which leaves them with limited resources to fund their growth, improve the manufacturing process, and even purchase better quality raw materials. A commercial loan can help mitigate such situations.

Many financial institutions including NBFCs offer commercial loans to businesses all across India. These organisations often offer a large sum of money along with several added features and benefits that allow a company to utilise the funds appropriately.

How do businesses benefit from commercial loans?

Commercial loans offer an alternate source of financing for businesses that do not want to strain their working capital to make expensive purchases. The additional funds can help you organise your business, improve the quality of the manufactured products, or even tap into business areas that will boom in future.

A commercial loan often does not come with any end-user restriction, which allows a borrower to utilise the funds to meet various monetary expenses, from restocking inventory to increasing working capital. Let’s take a look at some of the features and benefits of commercial loans.

• Large funding option – Financial institutions often offer a large sum (up to Rs. 30 Lakh) as commercial loans for businesses. Such a large amount provides enough capital to spend on an overhaul of essential components and to support business growth.

• No need for collateral – Commercial loans can be both secured and unsecured type of financing. This collateral-free option exempts a borrower to pledge any business or personal asset to qualify for a commercial loan. It allows the borrower to concentrate on their business without having to worry about a default.

• Attractive interest rates – Commercial loan interest rates usually depends on the type of credit a borrower chooses to avail. For example, the interest rate of unsecured commercial loans is generally higher than that of secured advances. It is due to the higher risk of repayment issues involved in an unsecured form of credit.

The interest also depends on other factors like fixed or floating rates. If a borrower opts for a fixed interest rate, he or she keeps paying the same amount throughout the tenor. Contrarily, floating commercial loan interest rates change along with the market fluctuation.

A lower interest rate can help you save a significant amount of money during your repayment tenor. You can reinvest this amount into your organisation for various purposes, e.g. integrating essential technologies that every small business needs.

• Flexible financing options – Certain financial institutions including NBFCs offer flexible borrowing options to ease the amount of payable interest. Lenders like Bajaj Finserv offer the Flexi Loan Facility, which allows you to borrow only the amount of funds you require and pay interest on the borrowed sum. It is a great way to help save on interest charges, as it can lower your EMI by up to 45% as you pay only for the borrowed amount.

Eligibility criteria

Applying for a commercial loan is a straightforward and hassle-free process thanks to its easy to meet eligibility criteria. An applicant has to be between 25 to 55 years of age, owning a business that has a vintage of at least 3 years. Also, the organisation should have its past years’ income tax returns duly filed, along with other necessary documents like KYC, business licence, etc.

Financial institutions offer commercial loans as a variant of business loans tailored to meet monetary requirements specific to MSMEs and SMEs. As such, they are available for a wide variety of customers, whether you are a self-employed professional, partnership firms, and service providers.

Commercial loans can give your business a stable financial backbone to rely on during its growth phase. Thanks to its affordable interest rates and large loan amounts, it can prove to be the ideal financial tool for you to boost your business into a sustainable growth curve.