Corporate Loans in India

Corporate loans, also called business loans, are meant to assist firms to meet their day-to-day financial obligations. Sometimes finances are required to expand an established firm, while other times it may be necessary to diversify into other similar enterprises. This is where corporate or business loans might provide much-needed assistance.

What are Corporate Loans?

Corporate loans, also known as business loans, are funds made available to corporations to help them manage their daily costs, support their working capital, or expand their operations. Term loans, infrastructure loans, and working capital loans are examples of corporate loans. 

Corporate loans are often secured loans where the collateral is held as security for debt collection in the event of loan default or nonpayment. Business loans are often given to companies that have been in operation for two to five years and have a strong credit history and track record.

Features and Benefits of Corporate Loan

The following are the advantages of corporate loans:

The loan is quickly disbursed

Business loans involve minimal documentation work and are quickly disbursed with no hindrance to the workflow.

Dropline overdraft facility

Some lenders provide the option of a dropline overdraft. With this option, a separate current account is created for the loan amount. This helps the borrower to pay interest only on the amount borrowed.

Flexible repayment terms

Most lenders provide a flexible payback term that typically varies between 12 and 36 months, and sometimes even up to 60 months.

Types of Corporate Loans in India

In India, the corporate loan types are categorized as below:

Term loans

The available funds from a corporate term loan might be used for anything related to the startup of a business, such as to provide operating cash, purchase/renovate machinery or property, equipment, or upgrade technology. 

Fixed or floating interest rates are available with term corporate loans. A secured corporate loan has a term of three years, and an unsecured loan has a term of up to fifteen years.

Corporate loan against securities

A corporate loan against securities is intended for individuals who invest in financial assets such as mutual funds, insurance, bonds, exchange-traded funds, and fixed maturity plans. You can pledge your securities as collateral and raise funds. Every year, the loan payback duration is renewed.

Overdraft services

Overdraft services enable company owners to debit their accounts to a limit below zero. Every bank will have a fixed limit on the amount based on the pledged securities. Borrowers must pay interest on the amount utilised.

Cash credit facility

This is a form of corporate loan in which you get money in exchange for your company's assets such as inventory or receivables. The maximum amount that may be withdrawn is 70% of the asset's value. The payback period is renewed every year.

Letter of credit facility

A letter of credit is an assurance from a bank that a buyer will make the payment to the seller on time and in full. The bank will be obligated to pay the amount if the buyer does not pay on time.

Channel finance

Channel financing is the most recent addition to the forms of business loans available in India. The loan guarantees that your distributors have the funds they need to purchase equipment and other products. The payback plan is tailored to the borrower's requirements.

GST corporate loan

The GST loan is remarkable in that it does not require any collateral. The lending amount is decided based on your GST returns.

Eligibility Criteria for Corporate Loan

Several elements influence an applicant's eligibility for a business loan.

Age of the applicant

Most lenders consider applicants between the ages of 21 and 65 years eligible for a business loan.

ITR filing

You must have submitted your ITR for the preceding years before applying for a corporate loan. Banks typically demand at least two years of ITR files for sanctioning a corporate loan to assess an applicant's credit repayment potential and monthly income.

Annual income

The eligibility for a loan based on an applicant's annual income differs from lender to lender. In general, you are deemed suitable for an unsecured business loan if you have annual revenue of at least Rs.1 crore. Certain lenders, however, would provide loans to applicants with an annual income of less than Rs.10 lakh.

Banking stability

Before approving a loan, lenders typically review at least six months of bank statements. During this process, the lender investigates the applicant's financial stability as well as the repayment history of past loans.

Business stability

Lenders also look at your company's history (in the case of existing enterprises) to determine the company's growth and stability.

Documents Required for Corporate Loans

The documents to be submitted while applying for corporate loans are listed below:

• Aadhar card, driving license, and PAN card as proof of identification.
• Voter ID, Aadhar card, electricity bill, etc., as proof of address.
• Income tax return files, establishment certificates, and other evidence of business continuity.
• Six-month bank statements.
• The most recent bank statement, as well as the total revenue, profit, and loss account and balance sheet of the past 2 years. A competent chartered accountant must audit this statement.
• Additional documents: Certified copies of the memorandum and articles of organisation, and the declaration of exclusive ownership.

Corporate Loan Interest Rate

The interest rates for corporate loans vary from bank to bank. The interest rates are determined by the organisation's business needs and financial soundness, as well as the company's credit score, loan repayment history, debt, and so on.

Loan Repayment

The conditions laid down for your corporate loan are entirely at the discretion of your lender. While some limit the repayment term to 12-36 months, others provide five years.

Frequently asked questions