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About Corporate Loans
Financial loans in India can be broadly classified into two types:
- Retail Loans
- Business Loans
Business loans or Corporate loans are mainly sought out by business owners, corporates and companies, to fulfil their daily business needs or to add to their working capital, to procure raw materials, to acquire assets, etc. It is basically a loan availed to run their business smoothly.
Corporate loans are offered in various kinds:
- Term loans
- Line of Credit
- Working Capital loans
- Venture loans
- Real estate loans
- Equipment loans
- Loan against future lease rentals
- Export financing
- Bill financing
- Short-term loans
The above is only a few of the numerous financing options available for businesses. The loans are pre-dominantly secured loans and are offered based on the creditworthiness of the applicant and at the discretion of the bank. These loans involve higher risk and hence come with higher interest rates and strict repayment terms.
Usage of a Corporate Loan
As mentioned earlier, corporate loans are offered to business entities & corporates. Some of the reasons to avail a corporate loan are
To start a new venture :
When you have an enterprising idea and would like to put it to action, you require the capital to start it. One can approach a bank or an NBFC to apply for a Venture loan to start a new business enterprise.
Daily business needs :
A firm or a business entity may need funds to meet the daily expensed of their business. These funds might be required for smaller expenses like rent, utilities, salaries, petty cash, etc. Then you can apply for a loan.
Purchase of assets :
When the business requires to purchase and install assets like building, machinery and other equipment, they can apply for a corporate loan.
Procurement of raw materials :
The business needs constant flow of capital to invest in new opportunities. They will require to buy raw materials to start a fresh batch of production. Corporate loans help you to avail quick cash while you are waiting for future payments or pending invoices.
Various Forms of Corporate Loans
These corporate loans are offered in various forms. Cash is not the only form in which loans are offered. Let us have a look at the various forms of credit offered under Corporate loans
- Working Capital loans :
- Line of Credit :
- Real Estate loans :
This loan provides for acquiring or creation of real estate such as office buildings, industrial or factory space, warehouses & cold storage units, retail spaces, hotels, multiplexes, gymnasiums, amusement parks, etc.
- Asset backed loans :
- Export financing :
- Equipment financing :
- Loan against future lease rentals :
- Finance against future receivables :
- Short-term loans : Business entities can avail various short-term loans to finance their immediate business needs, while waiting for a much larger and permanent source of funding. These loans are usually for smaller amounts and smaller periods of time. These loans have higher interest rates compared to other Corporate loans due to the high risk involved.
This is the most basic form of Corporate loan. This loan is availed to meet the daily business needs. This loan can be availed either as a Cash Credit, Line of Credit or Overdraft facility. This could be a Demand loan, or a Term loan based on the needs of the borrower.
This is a facility extended to creditworthy customers of the bank. A Line of Credit establishes the maximum loan amount that can be used by the borrower. The borrower can then draw on the line of credit at any time, making sure that they do not exceed the maximum limit set. The borrower is charged interest only for the amount that he/she used.
This loan can be availed for creation of assets for business needs. The assets can be for capacity expansion, modernization, adoption of latest technological processes, short term working capital, etc.
This is a pre-shipping financing extended to export companies. The loan amount can be used for purchase of raw materials, packing, transportation and warehousing of goods meant for export. This loan can be availed by submitting proof of the export order or a letter of credit by the importer.
This loan can be availed to procure necessary equipment to run the business. It can used for procuring medical equipment like scanning machines, x-ray machines etc; sewing machines for a textile factory, meat processing machines, grinding machines, and other similar equipment.
This loan is mainly sought out by property owners, who have a substantial rental/lease income. They can avail loan against their forecasted rental/lease receivables. However, the lessor should be reputed corporates or government entities.
Loan can be availed against assured future receivables from reputed corporates or non-corporate borrowers.
The list of corporate loans offered by banks and NBFCs is quite long. Each institution has a customized set of loan products to suit individual needs. Below, we have enlisted a few well-known corporate loan products by a few leading banks.
State Bank of India
The leading lender of the country has numerous products for the business sector too. They have one of the most exhaustive list of corporate loan products to suit every need
Their Corporate Loan segment is divided into two –
- Industrial Sector
- Trade & Services Sector
Industrial sector focuses mainly on manufacturing and huge industrial enterprises and their loan needs. The products under this segment include
- Working Capital financing
- Project financing
- Deferred Payment Guarantees
- Corporate Term loan
- Structures financing
- Equipment leasing
- Dealer financing
- Channel financing
- Loan Syndication
The Trade & Services sector includes
- Transport financing
- Bill financing
- Cash credit for traders
- Term loan for asset acquisition
- Letters of credit
- Bank guarantees
Punjab National Bank (PNB)
PNB is very popular among business owners for corporate loans. They offer quick and hassle-free loan processing. Their products are highly customized to suit individual needs. Some of their offering are
- Financing for Rooftop PV Solar Power Projects
- Loan against future lease rentals
- Working capital financing
- Project finance & Infrastructure financing
- Export financing, etc;
HDFC Bank
HDFC Bank has quick and simple corporate loan processing. They offer almost all forms of Corporate loans
- Working capital finance
- Short term finance
- Bill discounting
- Structured financing
- Export credit
ICICI Bank
ICICI Bank offers a very comprehensive set of banking solutions to its corporate. Some of their offerings are:
- Working capital financing
- Term loans
- GST Business loans, etc.
Conclusion
Corporate loan is a huge segment of financing. Most banks and NBFCs offer corporate financing in India. It is totally need based and depends on various factors like the size of the business, fund requirement, creditworthiness of the customer, etc. The intended borrower should approach their nearest bank or NBFC to learn more on the products offered by them and select the right product to suit his requirements.
FAQs of Corporate loans
1. What are corporate loans?
- Overdraft
- Cash Credit
- Letter of credit
- Guarantees
- Debt financing
- Term loans
- Equipment Financing
- Export financing
- Bills discounting
- Real estate financing
2. What is the eligibility to obtain a corporate loan?
- The age of the applicant or business owner should be from 21 years to 65 years.
- The business must be in existence at least for 1 year and some banks may require 3 years.
- The profitability pattern of previous years and the projected profitability and cash flow must be presented to the lender.
- The annual income can be a minimum of Rs 10 lakhs and this requirement varies with the lenders.
- The existence and ownership of collaterals like Inventory, Plant & Machinery, Buildings, and Land are essential for getting a secured loan.
- The business and financial standing – Your performance relating to repayment of existing loans and cash flow management in business are important.
3. I want to buy machinery for my factory. Can I get a business loan?
You can go for equipment financing. It is a form of a secured corporate loan. You can get a minimum of Rs 10 lakh to a maximum of Rs 2 crores. The higher your credit score and the profitability of your business you can get the full cost of equipment as a loan and negotiate on interest rates. Equipment financing can be taken for IT and office equipment as well. Most of the equipment financing is secured and requires hypothecation of the machinery or equipment purchased.
4. What is the rate of interest on a corporate loan?
The risks involved in corporate loans are high. The business standing and continuity are important for the timely repayment of the loans. Hence the interest rates are higher than retail loans. The interest rate ranges from 8.5% to 36%. The interest rate also varies depending upon your credit score, risk profile, and the amount of loan.
5. Can I get more than one type of corporate loan at the same time?
Businesses largely run on external financing. You can have a cash credit loan and an equipment loan at the same time provided that the repayments of both loans are regular. Many businesses have more than 3 different types of loans to manage their working capital and other business requirements. The lenders monitor the credit profile frequently when you have more than one corporate loan.
6. We are a newly formed company. Do banks provide loans for us?
You can get a start-up loan for your new venture. HDFC bank, Tata Capital, and Kotak Mahindra are a few top players in the start-up loan segment. The lender will require a detailed business plan to decide your eligibility. You can get a maximum of Rs 50 lakhs as a loan. The interest rates start from 15% owing to the risks of lending to a new business. The government also provides various financing options and tax incentives for start-ups. You can get yourself registered under the start-up India scheme to avail the benefits.
7. What are the other charges for maintaining a corporate loan?
Apart from interest, the banks may charge processing fees from 0.50% to 3% of the loan. There will be penal interest in case of missed payments. Cheque, EMI bounce fee, post-dated cheque charges, and loan cancellation charges are a few other charges in a corporate loan. Banks usually encourage pre-payment of corporate loans and some may levy foreclosure charges.
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