When it comes to the economic position of a country, businesses play a decisive role. When companies, both big and small, grow independently, they boost the economy in more ways than one. From generation of employment to contribution to the economy, businesses are important. For financial smoothness, most businesses rely on commercial business loans.
Commercial loans can play a decisive role in cash flow which is crucial for every business. Therefore, commercial loans are a major component of economic development. Let us dig deeper.
Understanding Commercial Loans
Commercial loans are short term business loans. They come in very handy to enhance a company’s working capital, and they can be used for any number of business expenses, such as paying staff salary, going on a business trip, organising a business event or buying some necessary equipment.
At the core of the Indian economy are the MSMEs (micro, small and medium enterprises). For such businesses, these short term loans are all the more significant, as they play a vital role in their functioning, growth and survival.
Short term business loans provide your business the required financing to expand your business, drive its growth, make investments, drive innovations and maintain economic stability. Thus, in turn, fueling the national economy engine and contributing to the country’s economic improvement.
Let us take a look at the features of a commercial loan.
- Tenure of the Loan
A business loan can be of broadly three types and you can choose one as per your business needs:
- Short-term Business Loans
Commercial loans with a tenure of less than 12 months may fall in the category of short-term loans.
- Medium-term Business Loans
A commercial loan that ranges from 1-3 years is termed as medium-term business loan.
- Long-term Business Loans
Commercial business loans of over 3 years tenure are long-term business loans.
- Meant for Businesses
As the name suggests, commercial business loans are specifically designed for businesses in need. So, individuals may not be able to apply for a business loan.
- Security Against Loan
A commercial loan can be categorised into 2 types based on security against loan:
- Secured Business Loan
A secured business loan is one where the business has to provide security against the loan. In this type, the interest rates are comparatively lower but the loan process can be time-consuming.
- Unsecured Business Loan
A business loan without any collateral/security is an unsecured loan. Although the interest rates can be high, the processing time is quick and instant.
- Interest Rates
Depending on your chosen lender and the type of business loan, the interest rates may vary. It may either be floating (fluctuates throughout the tenure) or a fixed one (unchanged throughout the loan term).
- A Quick Solution
An instant business loan is a quick solution, especially when there is an emergency for cash flow. Businesses can tackle immediate credit requirements by opting for an unsecured business loan instantly.
Conclusion
When thinking of taking a commercial loan for your company, it is suggested that you understand all about it. While the features given above are generic, every loan may come with its own set of terms and conditions. Consider the various aspects like interest rates, instalment amounts, prepayment, loan processing and other charges etc. Also, make sure that your loan is in line with your business requirements and avoid missing your payment deadlines.
