Corporate Loans: Types, Eligibility & Interest Rates

Business financing is a complex subject, given the variety of corporate loans in today’s market. A corporate loan is classified into various types based on the varying requirements of entrepreneurs and businesses. Some business needs like capital expenditure, managing daily operations, investments, etc., require financing through loans. 

To understand the varying types of business loans and their application process, continue reading this article. 

Types of Corporate Loans in India

Entrepreneurs in India can select a corporate loan from the ones listed below, depending on their needs. 

• Working Capital Loan: If any business requires cash to continue its daily operations, it can get a working capital loan. This loan helps businesses manage daily operations by generating cash flow during off-seasons, covering rent, payroll, or paying debts. It can also be used during high-demand seasons. However, it’s not meant for long-term investments or expenses

• Start-up Loan: As the name suggests, a start-up loan is for new businesses to manage operations and investments. Since these companies may not have a strong credit history, the lender looks at the applicant’s personal credit history. The company’s current turnover also helps decide the loan amount and interest rates.

• Invoice Financing: This is a loan taken by small businesses to bridge the gap between client payments and invoices. Businesses can borrow up to 80% of the invoice amount. The repayment terms depend on the lender.

• Term Loan: A term loan loan is a common business financing option. It can be secured (with collateral) or unsecured (without collateral) based on the business’s needs. The loan tenure is typically 1-5 years for unsecured loans and 15-20 years for secured loans. These loans are usually used for maintaining fixed assets, and the borrower receives a lump sum amount after approval.

• Loan Against Property: Businesses needing over Rs. 50 lakhs can opt for a loan against property. This loan is mainly for SMEs and can be secured by commercial or residential real estate. Lenders typically offer up to 70% of the property’s market value. The property must be free from legal issues.

• Equipment Financing: businesses purchase, repair, or upgrade machinery. The equipment itself is used as collateral for the loan, and sometimes additional assets may be required as security. Equipment financing often comes with lower interest rates compared to other loan types

• Business Loans for Women: Generally, many Non-Banking Financial Companies (NBFC) and banks have unique schemes for women entrepreneurs considering getting a loan for women. These schemes support women entrepreneurs with flexible loan amounts, quick approvals, and discounted interest rates. The Government of India has introduced several initiatives to encourage women to start their businesses.

• Merchant Cash Advance: It is for merchants who make daily sales. A bank or NBFC provides a portion of the merchant’s daily debit card sales to cover business expenses. Repayment is made through a percentage of daily sales, easing the pressure of fixed repayments. The merchant must ensure steady cash flow for business management.

• Overdraft: When your business or personal account balance drops to zero, An overdraft facility allows you to withdraw more money than your account balance to cover immediate expenses. It’s available for savings and current account holders. Banks set a limit for overdrafts, and interest is charged on the amount used. When you withdraw beyond your balance, the account is considered “overdrawn.”

Also Read: Need Money Fast? 4 Options For Small Business Owners

• Corporate Line of Credit (LOC) is another type of business loan which is revolving in nature. It is used to finance short-term requirements like inventory purchases and other requirements. It works similar to a credit card for businesses. 

Features of Corporate Loans in India

Here are some key features:

1. Affordable Interest Rates
   • Many trusted financial institutions offer corporate loans with interest rates that are lower than the usual industry rates.
2. Quick Approvals
   • Delays can harm a business, especially when capital is insufficient. Most lenders offer quick approval for corporate loans to avoid such issues.
3. No Collateral Required
   • Many corporate loans do not need any collateral to secure the loan.
4. Easy Online Application
   • You can apply for corporate loans easily through a simple online process without much hassle.
5. Flexible Loan Repayment
   • You can choose a repayment plan that works with your business’s cash flow, providing flexibility over the loan period.
6. Simple Documentation
   • The documentation required for corporate loans is straightforward, with lenders usually asking for only the essential documents.
7. Higher Loan Amounts
   • Corporate loans offer significant amounts, often up to ₹20 crores, to cover business expenses and working capital needs.

How to Apply for Corporate Business Loans? 

Any business can apply for secured or unsecured corporate loans if they meet the eligibility conditions as specified by a bank or NBFC. For secured loans, the applicant must have a business or personal asset (as demanded) ready to attach against their loan as collateral. In case of non-payment, the lender will claim this asset to make up for the unpaid amount. 

To meet immediate requirements of cash flow, you can also get unsecured corporate business loans that come with a shorter tenure than a secured loan. Check the following sections for understanding the eligibility conditions and required documents for corporate loans. 

Corporate Loans Eligibility

A corp loan or corporate loan is only offered to those business entities that meet the following eligibility conditions: 

• Age: The age of the applicant must range from 21 years to 65 years.

• Annual Income: An applicant’s minimum annual income requirement changes from lender to lender. Many lenders allow applicants with less than Rs. 10 lakhs annual income to get a corporate loan. However, the general minimum income for meeting the eligibility requirements is Rs. 1 crore. 

• Banking Stability: Before approving an application for a business loan, the lenders require the bank statements of the previous six months to check the banking stability of the applicant. In this manner, they also get to check the repayment history of the company or individual applying for the loan. 

• Business Stability: For existing businesses, lenders verify the stability of the business to track its growth rate. Based on these parameters, they reject or approve the loan applications. 

• ITR: Every applicant must have filed an ITR for the past years to get a business loan. Generally, lenders consider the ITR of the recent 2 years to determine the applicant’s monthly income and repayment capacity. 

Documents Required for Corporate Loan in India 

An applicant must submit the following documents along with their application for corporate business loans. Depending on your lender, one or two documents in this list could be added to get a better insight into your business before processing the corporate loans. 

• Proof of Address: Any government-recognized proof of address like a Driving Licence, Passport, Election Commission Card, Aadhaar card, etc. 

• Proof of Identity: Any government-recognized proof of identity like Passport, Election Commission Card, Aadhaar Card, etc. 

• Proof of Continuity: Any proof of continuity like an Establishment Certificate, ITR, Sales Tax Certificate, or Trade Licence.

• PAN card.

• Bank Statement: Previous six months statement of your current or savings account. 

• Total computed income, latest ITR, and certified balance sheet of the previous two years. 

• Others: Certified copy of Memorandum of Association, Board Resolution, declaration of sole proprietorship or deed of partnership, and certified copy of Articles of Association. 

Corporate Loan Repayment In India 

The tenure of a corp loan repayment varies depending on the financial institution from where you’ve taken the loan. The basic repayment tenure varies from one to two years. However, the repayment tenure of term loans is generally longer, depending on your lender. Follow these basic tips to pay off your debts in time responsibly:

• Borrow only the amount that you know you can repay. 
• Opt for lenders who offer flexible tenors. Increase your EMIs depending on the cash influx in your company. 
• Leverage the autopay facility to pay your EMIs on time. 
• Refinance your loan if required. 

Corporate Loan Interest Rate?

The interest rate for corporate loans varies depending on the financial institution, the borrower’s creditworthiness, loan amount, and tenure. Generally, corporate loan interest rates in India range from 8% to 28% per annum

Also Read: What Are The Best Accounting Practices For Small Businesses?

Conclusion 

Taking a corporate business loan has become an easy process due to the online submission and processing of applications. Ensure the authenticity of the documents before submitting them, and cross-check if you have submitted all the required documents. This will fast-forward your application for a corporate loan or a corporate line of credit without any delay.

FAQs

1. What types of corporate loans are available for businesses?

Corporate loans come in various forms, including term loans, working capital loans, equipment financing, and commercial real estate loans. The type of loan suitable for a business depends on its specific needs.

2. How can a business qualify for a corporate loan?

Qualification criteria for corporate loans may vary, but typically, lenders consider factors such as the business’s creditworthiness, financial stability, cash flow, and the purpose of the loan. Having a solid business plan and a positive credit history can enhance eligibility.

3. What is the repayment period for corporate loans?

The repayment period for corporate loans varies widely. Short-term loans may need to be repaid within a year, while long-term loans can extend to several years. The repayment term depends on the purpose of the loan and the financial agreement between the borrower and the lender.

4. Can startups qualify for corporate loans?

Yes, some lenders offer corporate loans to startups. However, startups may face stricter eligibility criteria and higher interest rates due to their limited operating history. Alternative funding options like angel investors or venture capital may also be considered.

5. How can a business improve its chances of loan approval?

Businesses can enhance their loan approval chances by maintaining a positive credit history, providing detailed financial records, having a well-structured business plan, and demonstrating the ability to generate sufficient cash flow to repay the loan.

6. Are there government-backed programs for corporate loans?

Yes, many countries have government-backed programs aimed at supporting businesses through loans. These programs often provide favourable terms and conditions to encourage economic growth and development.

7. Can a business apply for multiple corporate loans simultaneously?

Yes, a business can apply for multiple loans simultaneously. However, it’s crucial to carefully assess the financial implications and ensure that the combined repayments are manageable within the business’s cash flow.

8. Is collateral required for corporate loans?

Collateral requirements vary based on the type of loan and the lender’s policies. Some loans may be unsecured, while others may require business assets or personal guarantees as collateral.

9. What should a business do if it faces difficulty repaying a corporate loan?

If a business encounters challenges in repaying a corporate loan, it should communicate with the lender promptly. Many lenders are willing to work with businesses to restructure loan terms or establish alternative repayment plans during financial difficulties.