CORPORATE LOANS: Meaning, Types, and Interest Rates

corporate loans
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Apply for a corporate loan if you need money for working capital, expenses, or to expand your business.  The corporate loan can be secured or unsecured. While you’ll need to put up some collateral if you want a secured loan, you won’t have to provide any proof of value in exchange for an unsecured loan. These loans are typically disbursed to meet urgent or temporary capital needs. Unsecured business loans are possible, but only for those with excellent credit. This article will help you understand the meaning, types, interest rates, and corporate loans to shareholders.

Corporate Loans

Business and industrial houses that have been operating for at least five years and showing interest rates to shareholders for the past two years are eligible for corporate loans. In addition to this, the company must have a solid financial standing and an established record of profitability. Historical loan repayment data is also considered if the company has borrowed money in the past.

Here are just a few examples of the many banks and financial institutions that provide corporate loans and their interest rates to shareholders:

  • HDFC Bank:15.65% to 21.20%
  • IIFL Corporate Loan:18% to 25%

Corporate Loans to Shareholders

When a shareholder needs money and doesn’t have time to apply for a personal loan,  corporate loans can be a big help. When the company is strapped for cash, the shareholder can invest, but the organization must make sure to pay back the loan on time to avoid tax consequences for the investor.

It may not be possible to get a loan from a bank, but a shareholder always has the option of putting their own money into the company. Corporate loans can save you money because you won’t have to divide up your profits among other shareholders to get your money back. However, the shareholder must exercise caution when repaying the loan, as doing so may subject them to income taxation.

Procedure for Seeking Corporate Loans?

In order to get a business loan, you can either:

Firstly go to the local branch of your chosen banking system and fill out a loan application. Secondly, apply for the loan via the bank’s online portal if one is available for corporate borrowers. and the third option for obtaining a loan is to get in touch with a Direct Selling Agent. Lastly, look into a website that compiles information about business loans from multiple banks. A loan’s various features can be compared and contrasted so that the best option can be selected. After making your choice, you can apply for a loan directly through the third-party portal.

Eligibility Criteria for Corporate Loans

A corporate loan application’s viability depends on a number of different factors. 

Most business loan providers have a minimum age requirement of 21, and a maximum age requirement of 65, when considering loan applications. The applicant must have submitted all required ITR forms for all applicable tax years. In order to determine whether or not a company is qualified for a loan, banks typically need to see at least two years’ worth of tax returns. 

However, credit repayment ability and monthly income are assessed based on the ITR submitted by the applicant. Loan eligibility based on annual income varies widely from one lender to the next.  Unsecured business loans are typically available to those with annual incomes of at least Rs. 1 crore (or corporate loans). The good news is that there are financial institutions that will extend credit to borrowers whose annual income is significantly lower than Rs. 10 lakh.

Financial security: Before deciding to give a loan, banks usually look at bank statements from the last six months. Lenders do this to make sure that applicants have paid their debts on time in the past, which shows that they are financially stable. Also, lenders look at past financial data (for businesses that are already up and running) to figure out if the business is viable and what its future looks like. Insights like these also aid the lender in determining whether or not to grant the requested loan.

Documents Needed to Apply for Corporate Loans

Corporate loan documentation is straightforward and quick. Therefore, the documentation process may differ from one bank to the next. However, the following documents are typically required to apply for corporate loans to shareholders.

  • The PAN card.
  •  Aadhaar Card, 
  • Driving License, 
  • Election Commission Card, 
  • Passport, 
  • Voter ID Card, 
  • Bank statement for the previous six month
  • Proof of continuation, such as an ITR, an establishment certificate, a trade license, 
  • The most recent Income Tax Returns (ITR), as well as the total computed income, 
  • Board resolution, 
  • Certified copy of the Memorandum of Association
  • A certified copy of the AOA (Articles of Association), a sole proprietorship declaration (or partnership deed).

How to Apply for a Corporate Loan

Corporate loans can be obtained from different banking and financial institutions. The business loan application can be sent online or in person, depending on what the applicant prefers and how easy it is for them to do so. However, you can fill out an application form online at the website of your preferred bank or lending institution. If you prefer to speak with a human being, you can also drop by the local branch of the lending institution and speak with a representative in person. In either case, your application will be looked at if you meet the requirements and send in the right materials.

Usage of a Corporate Loan

As was previously mentioned, businesses and corporations can apply for corporate loans. The following are some of the main benefits of applying for a business loan: 

#1. For a Fresh Start

An initial investment of money is necessary when one has an entrepreneurial idea and wants to put it into action. To launch a new company, one can apply for a venture loan from a bank or NBFC.

#2. Essentials for Running a Business Every Day

A company or corporation may require capital to pay for operating costs. Smaller costs like rent, utilities, salaries, petty cash, etc. may necessitate these funds. After that, you can submit a loan request.

#3. Purchase of Assets 

A corporate loan can be applied for when the company needs to invest in fixed assets like a new building, machinery, or other equipment.

#4. Procurement of Raw Materials 

It is critical for the company to have access to a steady stream of capital so that it may pursue new opportunities. To begin a new run of manufacturing, they will need to acquire raw materials. Quick cash is available through corporate loans while you wait for payments on outstanding invoices or other revenue.

Various Forms of Corporate Loans

There is a wide range of corporate loan options available. Loans are available in more than just the traditional form of cash. Let’s take a peek at the few options available to the company and shareholders.

#1. Cash-Flow Loans

This is the bare-bones version of a business loan. The proceeds from this loan will be used to cover the regular expenses of the company. You can get this loan in the form of a cash credit, a line of credit, or an overdraft. Depending on the circumstances, this may take the form of a demand loan or a term loan.

#2. Installment Loan:

The bank offers this service to its most reliable clients. However, the maximum available loan amount is determined by the terms of a line of credit. After that, the borrower can access the line of credit whenever they need to, provided they don’t go over the predetermined cap. Borrowers are only required to pay interest on the funds they actually withdraw.

#3. Mortgages and Other Loans Secured by Real Property

Commercial and industrial properties, including office buildings, warehouses, cold storage facilities, retail locations, hotels, movie theaters, fitness centers, amusement parks, and more, can be purchased or built with the help of this loan.

#4. Short-Term Loans 

While waiting for a more substantial and long-term source of funding, businesses can take advantage of a variety of short-term loans to meet their immediate financial needs. The loan amount and term length for these types of financing are typically lower. Because of the elevated risk associated with these loans, they carry higher rates of interest than other types of corporate loans.

What Is a Loan to a Corporation?

It takes a lot of time and money to get a business off the ground. Lending money to a company requires following the proper protocol. To begin, the deal needs to be recorded accurately. Your business may be able to write off a loan you made for inventory purchases if it goes into default, unlike a loss on an investment. However, ordinary sources of revenue like W-2 wages, interest, and dividends can be used to offset the effects of a business’s bad debt. If you don’t have enough personal income to cover the business loss, this type of debt can make you a net operating loser on your personal tax return.

A loan to a corporation could also be a form of debt financing between an organization and a lending institution like a bank. It is commonly used to pay for expensive capital purchases and/or operating expenses that the business would otherwise struggle to bear.

What Are the Three Components of a Corporate Loan?

#1. Principal

The sum you wish to borrow in total constitutes your principal. This is the primary loan amount your lender will give you on the first day of the loan.

#2. Interest 

The cost of corporate loans is represented by the interest rates charged by the lender.

#3. Terms

The “loan terms” or “loan conditions” refer to all the other important details of your loan agreement. Loan terms, prepayments, fees, security, and repayment schedules are some of the most common terms.  

Types of Corporate Loans

There are different types of corporate loans which include:

  •  Loan Term
  •  A loan secured by securities
  •  Bank Guarantee and Letter of Credit Facility
  •  Credit Facility in Cash
  •  Overdraft Protection

How Long is a Corporate Loan?

Repaying a long-term business loan can take anywhere from a year to several decades. Long-term business loans typically have a repayment term of two to five years, though longer terms of up to 25 years are available.

What Types of Loans Are Available to Corporate Businesses?

Here are the few types of corporate loans available to businesses 

  • Term loans.
  • SBA loans.
  • Business lines of credit.
  • Equipment loans.
  • Invoice factoring and invoice financing
  • Commercial real estate loans
  • Microloans.
  • Merchant cash advances.

What Is the Easiest Loan to Get Approved For?

Payday loans, auto title loans, loans from pawn shops, and specific installment loans would likely be the easiest loans to get approved for. Borrowers with poor credit can turn to any of these options for a quick infusion of cash

What Are the 4 C’s of a Loan?

The 4 C’s of a loan include:

  • Capacity, 
  • Capital, 
  • Collateral 
  • Credit.

FAQs

What does corporate loan mean?

It means a loan made to a business rather than a government organization or an individual

What are corporate loans used for?

It is typically used to fund large capital expenditures and/or cover operational costs that the company could not otherwise afford.

Can my corporation give me a loan?

Borrowing money from a company is an option for shareholders and employees. They may end up with a hefty tax bill because they failed to consider the potential tax implications of their loan.

References

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