Following are the key features of Commercial Loan:

• Purpose: To meet the financial requirements of the business, including the purchase of new plant and machinery, to replace the existing plant and machinery, building infrastructure, expanding the business, etc. required to take the business to a greater level. Also, working capital finance is extended to provide for the day to day operational cost of the business.
• Loan amount: The loan limit depends on the project for which the finance is required. The assessment is based on the vision of the business through the projected financial statements for years up to which the repayment is fixed, the profile of the promoters, expected cash flow from the business, and other factors. 

For projects where the loan required is above  2 Crores, the project appraisal will be done by a team of skilled persons from the Project Finance Department (PFD) of the bank/financial institution. Based on PFD, liquidity ratio, Debt Service Coverage Ratio (DSCR), Fixed Asset Ratio, and various other factors, the quantum will be decided.

• Interest: The rate of interest varies from lender to lender., depending on the loan quantum, the project for which the finance is sought, line of activity, the business sector, and the customer’s profile.
• Security: The security depends on the quantum of loan and also the business sector.
  • Usually, for a loan up to Rs. 2 Crores to MSME Sector, no collateral security is insisted. The loan will be covered by the Credit Guarantee Scheme. 
  • Normally the primary security will be by way of hypothecation of the stocks and receivables if the finance is for working capital. 
  • Hypothecation of the assets created out of the bank finance if the loan is for capital investment. 
  • Collateral security by way of residential/commercial property will be required. 
  • The agricultural property will not be accepted unless the finance is for agricultural and allied activities.
• Repayment: The working capital finance is short-term finance provided for a period of 6 to 12 months, which will be renewed on an annual review. The repayment period for term loans ranges from 3 years to 8 years and even up to 20 years if the construction of business premises is involved.
• Processing fee: Processing fee also depends on the nature of the activity and the business sector but generally will be up to 3.5% depending on the bank/financial institution.
• Prepayment charges: Some of the lenders do not collect any prepayment charges while others charge Nil to 6% on the outstanding balance.