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All You Need To Know About Commercial Loans

Commercial Loans
Commercial Loans

Adequate cash flow is a key component of any operating business. Sometimes as it happens, a business may require additional financing to maintain cash flow, invest in the next stage of growth and expansion or for some other operational purpose. No matter what the purpose is, additional financing can be something crucial to the success of a business.

When a business needs additional financing, a commercial loan is the perfect solution for the business. In this article, we will discuss such loans in detail. Any business owner looking for additional financing for their business in India will be able to get complete insight into auch loans and make a wise decision for the sustenance and growth of their business.

What Is A Commercial Loan?

Commercial loans are the kind of loans that are arranged between a business and the lender. The lender can be a bank or any other type of financial institution that offers financing options to businesses. Such loans are generally offered for a short-term. Although, the lender can allow a loan renewal or extension if it is required.

In today’s time, numerous lenders offer such loans to businesses of all sizes and kinds and across a variety of sectors and industries. These loans are generally used for a variety of purposes and can be a great source of financing for businesses in India.

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Commercial Loans Are Customised!

The key characteristic of commercial business loans is the fact that there is no one-size-fits-all. Commercial lending has a customised approach which makes them a suitable option for different kinds of businesses. Such loans can serve the needs of a start-up that seeks debt financing as well as an established company needs funds to buy out another business.

Not just that, businesses use such commercial financing options for a variety of purposes like:

  • Tap new markets
  • Purchase equipment
  • Buy real estate
  • Pay debts
  • Acquire working capital
  • Make acquisitions

Types of Commercial Loans

If you are thinking of availing a commercial business loan, you need to first know about the various types of loans available. This will help you make the right choice about the kind of financing that will be appropriate for your business and its imminent needs.

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Term Loans

This is a very common type of business loan in India. The borrower has to repay the loan along with the interest, within this time frame. Term loans can be further classified into:

  • Short-term loans (less than a year)
  • Medium-term loans (12 months-36 months)
  • Long-term loans (above 36 months)

They may or may not have collaterals involved. If it requires collateral, it is a secured loan, and if it does not, then it is known as an unsecured business loan.

Bank Overdraft

This type of financing enables a business organisation to acquire funds exceeding the available balance in the business’ current account. This is also a short-term financing scheme. Different lenders have different kinds of terms and conditions for such loans and these are decided during the sanction of the loan. It works like a credit extension when the available balance of a business reaches zero.

Letter of Credit

This is a kind of financing where the lender provides a guarantee that the buyer will make timely payments to the seller. The buyer is the business taking the loan here. In case the business fails to pay, the financial institution makes the payment on their behalf.

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SME Collateral Free Loan

An unsecured business loan that is offered to startups and small and medium-sized businesses in India. These loans are given out by lenders based on the income, age, credit history, and other such factors.

Equipment Financing

The lender offers a loan to a business to buy equipment. The equipment itself acts as the collateral for the loan here.

Business Credit Cards

Like normal credit cards, these can be used by businesses to manage different kinds of expenses and the loan is paid back in a similar way like regular credit cards.

Other types of commercial business loan include:

  • SME credit cards
  • Commercial real estate loans
  • Commercial equipment loans
  • And commercial vehicle loans
  • Bank guarantee
  • Invoice financing

Final Thoughts

Commercial loans are easily available in India, and are offered by numerous lenders. Check out the facilities and offers before you make a choice and based upon the requirements of your business.

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