Commercial Loan for Small Business – Overview, Apply Process

A commercial loan may be a loan extended to businesses by a financial organization. The loan is usually employed by small and middle-market corporate borrowers.

Commercial loans are very helpful to small businesses which will not have sufficient funds to require care of various financial requirements.

Many small businesses might not be eligible to use for normal loans thanks to eligibility criteria, high upfront fees, and strict regulatory obstacles.

In this article I’m going to discuss Commercial Loan, applying process and other important information, I promised this information help you to get a Commercial Loan in India in 2021, 2022.

Commercial loans can ultimately be used for any purposes required for the business – acquiring assets, purchasing supplies, meeting daily operational costs, paying payroll, etc.

Definition: What is Commercial Loan?

A commercial loan may be a loan that’s extended to businesses by a financial organization. Commercial loans are generally wont to purchase long-term assets or to assist fund day-to-day operational costs. These loans start from Rs. 50,000 up to 2 crores.

Small businesses that have already built a robust footing within the market can now advance to the subsequent stage, which is an expansion of the business.

This loan is provided through a debt-based funding agreement between a business entity and a lender. Both banks and non-banking financial corporations (NBFCs) offer commercial loans to companies and firms. Commercial loans aren’t offered to individual loan applicants for private reasons.

These loans help corporations meet their financial expenses for his or her various activities. a number of the expenditures include capital expenditures, operating expenses, etc.

Commercial loans are sometimes referred to as business loans too. These loans are typically offered for a brief tenure. The tenure can range from 1 month to 1 year counting on the company’s requirements.

Commercial Loan for Small Business in India

How to Work a Commercial Loans?

Commercial loans are granted to a spread of business entities, usually to help with short-term funding needs for operational costs or for the acquisition of kit to facilitate the operating process.

In some instances, the loan could also be extended to assist the business meet more basic operational needs, like funding for payroll or to get supplies utilized in the assembly and manufacturing process.

These loans often require that a business posts collateral, usually within the sort of property, plant or equipment that the bank can confiscate from the borrower in the event of default or bankruptcy. Sometimes cash flows generated from future assets are used as a loan’s collateral.

Overview of Commercial Loan

  • Commercial loans are provided to a business entity and to not individual consumers.
  • they will be utilised by organisations to handle financial expenses like purchasing equipment, buying and installing machinery, purchasing inventory, buying furniture, purchasing vehicles for company purpose, construction, renovation of office location(s), etc.
  • Commercial loans are often secured or unsecured. If an organisation chooses a secured business loan, then they’re going to need to provide collateral or security to the lender. during this case, the interest rates are going to be lower because the level of risk is low for the lender. If a corporation wants to use for an unsecured business loan, then the speed of interest is going to be slightly higher because the lender will face a better level of risk since there’s no security involved during this loan agreement. If you’re taking a billboard vehicle or asset loan, this particular vehicle or asset are going to be hypothecated to your lender.
  • Commercial loans are provided for a brief period. this will range from 30 days to 1 year. it’s sometimes given for an extended tenure too. this may depend upon the lender. once you apply for commercial equipment loans or commercial construction loans, you’ll choose an extended tenure for up to 4 or 5 years.
  • Commercial loans can cover revolving lines of credit, short-term debt, long-term debt, etc.
  • Commercial loans are offered at fixed interest rates or floating interest rates. If you’ve got a hard and fast rate of interest, your interest will remain fixed throughout the tenure. If you’ve got a floating rate of interest, your interest will fluctuate with changes within the market.
  • you’ll repay a billboard loan through post-dated cheques, Electronic Clearing Service (ECS), Standing Instruction (SI), etc.
  • Typically, once you make the last payment of your business loan, the asset that’s hypothecated together with your lender will now be in your name and you’ll revoke the lien of the lender on your company’s vehicle or asset.
  • Commercial loans also help companies in purchasing supplies, buying raw materials, funding production processes, handling payroll needs, etc.
  • Commercial loans are often taken for purchasing land properties too. These loans are going to be commercial mortgage loans that help a firm in purchasing commercial properties.
  • Commercial loans are sometimes provided to self-employed professionals or non-professionals so that they will purchase property or the other asset for his or her firm’s requirements. These individual loan applicants are often lawyers, doctors, engineers, architects, consultants, contractors, etc. and that they will need to apply on behalf of their firm.
  • These loans are often utilised for expanding company operations too.

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Eligibility Criteria for Commercial Loans

While applying for a commercial loan, you want to fulfil the business loan eligibility criteria. Here is that the paperwork you want to provide to make sure that your application is reviewed as quickly as possible.

  • The applicant must be 21 years aged and less than 65 years old while applying for the loan.
  • Commercial loans are given to sole proprietors, individual corporations, and personal companies involved in trading, services, or production.
  • The candidate must have worked for 3 years and possess a minimum of five years of experience within the industry.
  • The applicant must verify the paperwork well before applying for a loan. It should be in digital format to submit easily during the appliance process.

Documentation Required for Apply a Commercial Loans

While applying for a Commercial loan, a firm or individual will need to compulsorily submit certain documents to the lender and that they include, Here are the details that you must be provided for applying for a Commercial Loan in India,

  • PAN card for firms, companies, and individuals
  • VAT or GST statements for a particular period
  • Record
  • Tax returns for a particular period
  • Profit and Loss statement for a particular period
  • Bank statements for a particular period
  • Proof of continuation in business. the corporate can submit trade licenses, nuisance tax certificates, tax Returns, establishment certificates, etc.
  • Certified Copy of Partnership Deed
  • Sole Proprietorship Declaration
  • Board resolution
  • A certified true copy of Memorandum and Articles of Association

How to Apply for a Commercial Loan for Small Business in India?

Here is the Step by Step process to apply for a commercial Loan in India:

Apply process commercial Loan

Step 1. Pre-Qualification Process

Any lender first evaluates the financials of the business, outstanding debt, and therefore the purpose or need for capital. during this process, the lender establishes the borrowing capacity and other regulatory aspects for the business.

Step 2. Filing Your application

Post-pre-qualification, the business owner must fill within the application and submit all the specified documents mentioned by the lender that is associated with the firm, including financial models, bank statements, and collaterals.

Step 3. Review of Your application

Every application is typically handled by a loan officer who will evaluate the appliance. The loan officer is liable for reviewing all the documents, income projections, credit history, and founder background.

Step 4. Loan Committee

After a review of documents by the loan officer, they’re passed onto the committee that further conducts due diligence and decides whether the loan are often approved. It sometimes asks for details within the due diligence process to know the business better.

Step 5. Approval of Term Sheet

After approval by the loan committee, the owner receives a term sheet from the loan processor. It contains all the small print associated with the loan, like the quantity, use of the loan, interest rates, term, and collateral. When the term sheet is signed, third-party reports are generated.

Step 6. Closure

Once this whole process is completed, the whole application with all the small print is shipped to the underwriter for final approval. After the underwriter’s approval, the business owners got to provide their signatures on the ultimate documents. It marks closure, and therefore the loan gets disbursed.

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How can I check the Eligiblity for a Commercial Loan?

If you’ll fulfil all the below requirements, you’re all prepared to use for a billboard loan.

  • The business must be in operations for quite six
  • The minimum turnover of Rs. 90,000 or more should be fulfilled three months before submitting your application.
  • The business shouldn’t be within the list of negative locations.
  • the sole businesses that aren’t eligible for commercial loans are trusts, NGOs and charitable institutions.

Contact us just in case your business falls under the restricted category or location, to verify if you’re eligible.

Hope you read this article completely and got you to answer, If you have any other queries about this topic kindly raise a comment below. I’ll add that answer to the below FAQ. Thank you.


What is the Maximum Commercial loan amount I can get?

Basically There was the loans start from Rs. 50,000 up to 2 crores.

What is the maximum turnaround time of a commercial Loan?

If all of your documentation is so as , then you’ll hear from us in 1-3 day.

What is Credit Score?

As Wikipedia, A credit score may be a numerical expression supported A level analysis of an individual’s credit files, to represent the creditworthiness of a private.

A credit score is based on a credit report, information typically sourced from credit bureaus.

Is there I’m able to get a commercial loan with low credit score?

Banks may refuse to offer business loans to owners with bad credit, we do offer loans to owners with bad credit, but at a way higher rate.

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