Corporate Loans – Everything To Understand

Corporate Loans – Everything To Understand

When an operating business needs more funding, it applies for a corporate loan. The loan it receives can be useful for the following requirements:

• To take care of daily expenditure
• To renovate the firm
• To fund the working capital
• To expand your market

Secured and Unsecured Loans

As you know, a corporate loan can either be secured or unsecured. Secured loans require that you provide collateral. It helps the lender sell the asset you offered to repay the loan if you fail in this regard. Going for this loan enables you to get lower interest rates and more extended repayment periods.

An unsecured loan, on the other hand, does not require that you submit any security. Disbursal of such loans is generally for immediate or short-term funding requirements. But you need to have a high credit rating to avail an unsecured corporate loan.

Types of Corporate Loans in India

There are eight common types of corporate loans in India. They are as follows.

1. Term corporate business loans

You can use the available funding from corporate term loan for anything you want. Either for infusing working capital, purchasing-renovating machinery or property, buying equipment, or upgrading technology. Interest rates can either be fixed or floating. However, it is a fixed loan repayment term. It is three years for a secured corporate loan and up to 15 years for its unsecured variant.

2. Corporate loan against securities

This loan is for those investing in financial securities like mutual funds, insurance, bonds, and exchange-traded funds or fixed maturity plans. All you need to do is to pledge your security. The loan repayment term gets renewed every year.

3. Overdraft facilities

These facilities allow business owners to debit their accounts below 0. Every bank will have a pre-determined limit of the available amount.  It varies depending on the type of security you have pledged. You pay interest only on the amount used. But the bank holds the right to repay your loan on short notice.

4. Cash credit facility

It is a type of corporate loan where you receive money for your business assets like inventory or receivables. The amount allowed to withdraw is up to 70% of the value of the asset submitted. And the repayment term gets renew every 12 months.

5. Letter of credit facility

Here, the bank gives a letter of recommendation to the lender in question. It attests to the evaluation that you will pay on time. If you fail, the bank will repay your loan provided you fulfill their conditions.

5. Channel financing

Channel financing is perhaps the latest entry among the types of corporate loans in India. Here, you get a chance to strengthen your network of distributors. The loan ensures that your distributors get the funding required to buy equipment and other items. The design of the repayment schedule is as per the needs of the borrower.

6. Working capital GST corporate loan

This loan gives you instant access to funding when in need of quick cash. The amazing thing about GST loan is that it eliminates paperwork. The fund available is determined based on your GST return.

7. Drop-line overdraft facility

Individual lenders even offer drop-line overdraft facility. Here, the lender deposits the loan amount in a separate account. It is done to ease corporate loan interest rates. You pay interest only for the amount of the loan used.