Small businesses don’t stay small forever. That was the dream when you started them. If you have been in business for a few years, you may be ready to move up to the medium-sized business sector, one of the most critical sectors of the Indian economy.
Small business loans may only get your business halfway to where you want it to be if you’re going to do this. The purpose of this guide is to introduce you to the most effective type of financing for medium-sized businesses: a commercial loan.
Commercial loans have many advantages
Your business will be able to expand quickly by obtaining a commercial loan. It doesn’t have to take years before you have saved up from existing revenue. The amortization of commercial loans is generally spread over some years, often ten or more, so even large amounts will have manageable payments.
Depending on the size of the loan, the lender might be able to set a more flexible repayment schedule that meets your payment schedule, which might not be an option for a smaller loan. Despite the lender charging your interest on your loan, all interest you must pay on your loan is tax-deductible.
In addition, you’ll get a large amount of money without giving up ownership of your business with a commercial loan. Bringing on an investor isn’t like taking a percentage of the company to get the money.
The commercial loan can streamline your cash flow, invoice finance and give you the time and capital to streamline your cash flow and get to profitable territory while providing capital in your pocket and capital in your bank account. The loans provide an opportunity to strike a balance between your business fund and your company capital fund by allowing for repayment in installments.
Applying for commercial loans
Small businesses which may not have enough funds to meet their financial obligations can benefit from these commercial loans. Due to tight eligibility criteria, high upfront charges, and stringent regulatory requirements. As a result, small businesses must use alternative debt products to cover their financial obligations, including consumer credit, unsecured loans, commercial loans, lines of credit, and term loans. The main eligibility criteria are as follows:
- Partnerships, sole proprietorships, public limited companies, private limited companies, individuals, and private and public limited companies can apply for commercial loans or business loans in India.
- Ideally, a commercial loan recipient should have a good turnover rate. Lenders will have different requirements for turnover. Contact your lender for details.
- In order to qualify for a loan, a company must earn a minimum amount of income annually.
- Lenders will specify the period during which a firm must have made profits.
- Commercial loans are available to companies that have operated for a set period of time, which the lender will indicate.
- A firm’s representative typically needs to be at least 21 years old to apply on their behalf. Senior citizens are always welcome to apply. Lenders may have different eligibility requirements.
Documents needed
The documents a firm or individual must submit to a lender in order to qualify for a commercial loan include:
- Obtaining a PAN card for your firm, company, or individual.
- For a certain period, you can view VAT or GST statements.
- Statement of financial position.
- Returns of income taxes for a given period.
- Statement of profits and losses for a certain period.
- For a certain period, bank statements are available.
- Any indication of the business’s continuation: in addition to submitting trade licenses, sales tax certificates, Income Tax Returns, invoice finance, establishment certificates, etc., the company can submit tax returns, etc.
- Partnership Deed certified by a lawyer.
- Incorporation as a sole proprietor.
- Resolution of the Board of Directors.
- Memorandum & Articles of Association certified as true.
Applicable fees
Some certain fees need to be paid when applying for a commercial loan. On top of the interest rate, borrowers must pay loan processing fees, interest amortization fees, stamp duty, check swapping fees, legal or incidental costs, cheque bounce charges, late payment charges, prepayment charges, etc.
Before the loan is approved, your lender will tell you what the charges are. You can find details about all charges in the commercial loan policy document. Obtaining a commercial loan can help your business meet a lot of different financial obligations. The organization needs to demonstrate that it has a good cash flow when applying for a commercial loan.
This information will give the lender confidence about the borrower’s ability to repay the loan instalments on time. Depending on the lender, they may ask the borrower to purchase insurance for assets they’ve purchased with the loan, especially if the assets are valuable.