Corporations or businesses are always in need of funds to expand business operations to meet the ever increasing needs of their customers. While there are high demands for service delivery, researching and financing in order to boost productivity require huge capital, and the funds need to come at the right time. Businesses cannot wait until they have saved such amount needed to expand operations, hence they may wait for eternity. It is in view of this that corporate loans were introduced.
This article will take you through corporate loans in India, as well as issuing banks and categories of individuals or bodies qualified to access the loan.
WHAT ARE CORPORATE LOANS?
Corporate loans can be described as loans needed by corporations or industrial houses to expand their operations and then employ more people. Corporate loans cannot be accessed randomly by any type of corporation. There are requirements to meet before applying for a corporate loan. In India, a business must have been in operation no longer than 5 years before qualifying for a corporate loan. Plus, the business must have made a good profit in the last 2 years prior to applying for the corporate loan. In addition, the business must have a proven track record and an awesome credit rating. If the business had earlier taken a corporate loan, the issuing bank will look at the records of the borrower before issuing the loan.
Businesses can leverage corporate loans to expand their operations. There are several types of corporate loans on the market you can choose from. However, the challenge here is to identify the appropriate loan that will meet your business needs. Therefore, before taking any borrowing steps, you should consult with a financial expert for professional advice. Financial experts are trained and certified to guide you after considering the nature of your business with respect to the type of loan you should apply for.
TYPES OF CORPORATE LOANS
As a business owner, the essence of having a constant flow of income cannot be overemphasized. A break in the flow of income can mar your business growth. Every business at one point or the other must have experience cash crunch. If the business is a new venture, then the cash crunch might be more frequent.
In order to ensure that your business keeps growing, you need to have a well thought out plan which you can have access to a loan in order to finance your business. To this end, a corporate loan becomes a savior. The following are the types of corporate loans available on the market:
Demand Loan: A demand loan is a type of loan which the lender can request at any time and you are expected to repay when such request is lodged, depending on the policy of the lender. The loan is always available at any time in a given financial year. Demand loans may be secured and unsecured and usually comes with a relatively good rate. These loans are available for short-term funding needs. The duration of this type of loan is 12 months, after which a borrower may apply for renewal.
- Term Loans: A term loan is meant for those businesses that want to acquire long-term assets such as equipment, machines, lands, and building. Other assets to finance with a term loan are infrastructure, renovation, and capital infusion, vehicles, among others. A term loan comes with a quarterly or monthly repayment schedule. The interest rate is usually floating or fixed. In terms of a secured loan, term loan duration is 15 years, while for an unsecured loan, the duration is 3 years. A term loan’s quantum is based on the lender’s eligibility and need.
- Loan Against Securities: If you had earlier invested on any securities like mutual funds, fixed maturity plans, Demat shares, insurance policy, exchange-traded funds, and savings bonds, you can leverage loan against them to fund your business. You can plunge the funds into growing your business and increasing productivity. The tenure of loans against securities is usually one year. However, it is pertinent to mention here that only those Securities that are approved by a financial institution are available to take the loan.
- Cash Credit Facility and Overdraft Facility: This type of loan is granted as overdrafts based on a borrower’s security with respect to stock in trade or process. Cash credit facility can be secured when you pledge your business assets like inventory or receivables. The limit on this type of loan is usually 70 to 80 percent.
- The limit can be calculated after deducting bank’s margin over the stocks. The tenure of this type of loan is usually 12 months. The best areas of a business to deploy this type of loan to are receivables and inventory. On the other hand, an overdraft is a loan facility whereby a financial institution can allow you to withdraw from your current account below zero thresholds up to a particular limit.
- The limit is pegged by the issuer based on the securities like properties or other financial assets. The interest charged on this type of loan is based on the amount utilized. The financial institution reserves the right to demand a repayment at short notice.
- Letter of Credit (LC) Facility: A letter of credit is a facility issued by a bank to a borrower’s seller guaranteeing the seller that the borrower will pay back the exact amount as at when due. In a situation whereby the borrower is not able to pay back, the bank will take over the payment under certain conditions. A letter of credit can be used in various local and international trade transactions to ensure that sellers get paid even if the buyer is resident in another country. The tenure of this type of corporate loan is usually 12 months.
- Bank Guarantee: A bank guarantee is a facility which businesses can leverage to reduce their operational cost if a transaction does not go well. This type of corporate loan guarantees a certain sum to the borrower. This facility is used to insure sellers or buyers from any damage or loss caused by nonperformance of the other party.
TOP BANKS OFFERING CORPORATE LOANS IN INDIA
The following table shows top 5 banks that offer corporate or business loans:
|HSBC Corporate Loan||HSBC offers business finance based on the nature and goals of your business and help you find the right loan for your business. The bank also offers loan for business property to help expand and grow your business by obtaining the right office premises at the right location. Loan against property is offered to meet the financial requirements at the time of need to make the most of a business opportunity. Home loans for business are offered to make a good investment. Business overdraft is another facility offered by HSBC to finance urgent requirements|
|ICICI Bank Corporate Loan||ICICI Bank offers Smart Business Loan to its existing customers to meet working capital finance requirement. It is an unsecured overdraft facility of up to Rs.25 lakh. The customers eligible are sole proprietorship firms, partnership firms, private limited companies and public limited companies. The interest is charged on the outstanding amount only. Customer will have to pay minimum 5% of the utilized credit every month. This loan is available for manufacturers, service providers and traders.|
|Union Bank of India Corporate Loan||Union Bank of India offers corporate loans to meet the cash flow requirement and for other general purposes. Visit the nearest branch to know more about the loan.|
|Kotak Mahindra Bank Corporate Loan||Kotak Mahindra offers Business Loans to help you grow your business and diversify it. It offers you loan ranging from Rs.3 lakh to Rs.75 lakh. And the processing is quick and hassle free and requires minimum paperwork and the repayment option is flexible and it can be done with easy EMI options. Self-employed businessmen, manufacturers, service providers can apply for this loan.|
|HDFC Bank Corporate Loan||HDFC Bank offers business loans to self-employed, individual proprietors, private limited companies and partnership firms that are involved in manufacturing, trading or service industry. Loan of up to Rs.15 lakhs is offered and it has flexible repayment options ranging from 12-36 months. The interest rate offered is as low as 15.25% on existing loan transfers and the processing fee is set at 0.99%.
A GST rate of 18% will be applicable on banking services and products from 01 July, 2017.
WHO CAN APPLY FOR A CORPORATE LOAN?
The following are the categories of individual or bodies that are qualified to apply for a corporate loan:
- Any self-employed individual or professional
- Sole proprietorship
- Limited or private limited company
- Partnership firm
- The borrowing business should be working in a profitable state since at least last 6 months or 1 year
- The age of the borrower should be between 25-65 years.
HOW TO APPLY FOR A CORPORATE LOAN?
Applying for a corporate loan is pretty easy. You can apply for the loan either by visit a bank or by applying online from the comfort of your home. Nowadays, there are several financial institutions giving corporate loans, which you can leverage to expand your business.
DOCUMENTS REQUIRED TO APPLY FOR A CORPORATE LOAN
The following documents are required along with your Corporate Loan application:
- PAN Card – For Company/Firm/Individual
- A copy of any of the following documents as identity proof:
- Aadhaar Card
- Voter’s ID Card
- PAN Card
- Driving License
- A copy of any of the following documents as address proof:
- Aadhaar Card
- Voter’s ID Card
- Driving License
- Bank statement of the previous 6 months
- Recent ITR together with the balance sheet, computation of income, Profit & Loss account for the previous 2 years, after being CA Certified/Audited
- Proof of continuation (ITR/Trade license/Establishment/Sales Tax Certificate)
- Other Mandatory Documents such as:
- Sole Prop. Declaration
- Certified Copy of Partnership Deed
- Certified true copy of Memorandum & Articles of Association