Commercial Loan:

Businesses require sizable working capital to maintain their everyday operation and optimise production or sales. Since business owners do not always have funding at disposal, they often need to arrange finance in the form of commercial loans.

Such an option does not just help to continue the production process but also aids in expansion and allows meeting sudden business-related expenses conveniently. Individuals should also learn everything about commercial credit and plan accordingly to make the most of.

What is a Commercial Loan?

A commercial loan can be best described as a lump sum funding option available for businesses to help them meet related expenses easily. It can thus help businesses to increase their current working capital, upgrade machinery and software, meet operational cost, etc.  

Depending on the type of commercial advance, borrowers may or may not be required to pledge an asset to avail funding. Also, they may use their unpaid accounts receivables like invoices to raise funding via options like invoice discounting services. 

Types Of Commercial Loans:

Here are the most common types of commercial loans available to businesses - 

  • Term Loan:

This type of commercial credit has to be repaid within a predetermined period. Based on the repayment tenure, a term loan can be available as a –

  1. Short-term loan: Typically repaid within a year of borrowing.
  2. Mid-term loan: The repayment tenure ranges between 12 and 36 months.
  3. Long-term loan: The repayment tenure is usually more than 3 years.

Usually, such a credit option accompanies an interest charge and follows a monthly or quarterly repayment schedule.

  • Letter of Credit (LC)

A letter of credit, also known as a documentary credit, is available as an international trade financing option. It is essentially a guarantee provided by an importer’s financial institution to an exporter that payment will be cleared as per agreement once the required documents are submitted to the financial institution. 

It acts as a safety cover against the financial risks associated with international trade, especially where the importers and exporters are not acquainted with each other.

  • Bank Guarantee

This commercial lending option is more like a ‘Letter of Guarantee’ issued by a banking institution on behalf of its customers. It is a guarantee to a third-party that the said customer will pay the agreed amount within the specified period. A bank guarantee insures either a buyer or a seller against any loss or damage that may arise due to the other party’s failure to meet the contract terms.

  • Bank Overdraft Facility

Under this commercial lending option, businesses can draw an amount over and above the financing limit approved for their current account. It is considered a useful source of immediate funding as it is readily available for withdrawal. Both the funding quantum and the applicable interest rate are decided before approval. Typically, self-employed individuals and business enterprises can benefit from this credit facility.

  • SME Collateral-Free Loans

It is essentially a business loan that fulfils the funding needs of SMEs and can be availed without pledging any asset as security. Also, SME owners do not have to provide any third-party guarantee to obtain this loan. Start-ups, as well as firms that are beyond their initial phase, can benefit from this credit. However, businesses involved in the retail service are not considered eligible for this commercial lending option.

  • Business Credit Card

A business credit card serves as a financial tool that helps business owners to meet their everyday business expenses. It accompanies several benefits and helps business owners to save more on expenses made via the card. For instance, transactions made through business cards help users earn reward points, cash backs, discounts and bonuses.

  • Construction Equipment Loans

Businesses resort to this funding option to purchase high-value equipment like – cranes, backhoe loaders, excavators, bulldozer, etc. It is primarily a secured loan as the purchased equipment is hypothecated until total repayment of the advance. Notably, the loan tenure often depends on the borrower’s repayment capacity and loan agreement. 

  • Commercial Vehicle Loans

This funding option allows borrowers to buy commercial vehicles like tippers, buses, delivery trucks, flatbed trucks, etc. This loan can be availed by –

  • Businesses with at least 2 years of experience 
  • Business owners with at least 2 commercial vehicles
  • Transporters

Typically, commercial vehicle credit comes with a repayment term ranging between 1 year and 5 years. 

Other than these, other popular commercial lending options include lease financing services, invoice discounting services, etc. Individuals can avail a commercial loan based on their funding requirement and repayment capacity.

What Is The Need For Commercial Loan?

The following table highlights the reasons why individuals opt for commercial lending



Business expansion 

Businesses that wish to move past their start-up phase or plan to expand their existing scale of operation require additional capital. 

Purchasing new equipment  

Business owners often purchase new equipment or repair old ones to optimise production. However, purchasing and installing high-end machinery is often expensive, which requires additional funding in the form of commercial advances.

Managing stock 

To keep the production process uninterrupted, business owners must maintain their inventories stocked at all times. The availability of adequate financing at disposal comes in handy in restocking inventory. 

Upgrading software

Most business firms rely on project management and accounting software irrespective of their size. Such software helps to keep track of various production processes and also involves significant expense.

Raising working capital 

Maintenance of adequate working capital helps to meet unplanned operational expenses of a business conveniently. Lack of the same can hinder the smooth flow of the production process, thus requiring commercial funding.

Commercial Lending Via Invoice Discounting:

Business owners can access commercial loans via invoice discounting and raise the required working capital with ease. Business owners leverage their unpaid bills receivable to raise funds via this facility.

KredX provides invoice discounting services, through which you can raise funds within 24 to 72 hours* for continuous cash flow maintenance. The financing facility is unsecured and does not require you to pledge or mortgage any business assets. All you need to do is meet the simple eligibility criteria and upload your invoices on our online portal to access funds.

Based on the value of invoices and eligibility, applicants can receive up to 90% of the invoice value as the loan amount. Under favourable circumstances, a commercial loan can be raised through invoice discounting by –

  • Business owners
  • Manufacturers
  • Distributors 

Such funding options work best when business owners have less debt burden, their customers have strong repayment capability, and they fulfil other requirements.

How Do I Become Eligible For Commercial Lending Via Bill Discounting?

The eligibility for a commercial loan via bill discounting services depends on several factors, namely –

  • Financial requirement
  • Business turnover
  • Market goodwill
  • Invoice amount
  • The applicant’s capability to repay 

Sign Up Now to Check your Eligibility for Invoice Discounting

    With KredX, any business that provides goods and services to blue-chip companies can raise commercial loans via bill discounting. Firms with a favourable credit score and high repayment capability are more likely to maximise the benefits that accompany our bill discounting services.

    Are you wondering how want to raise working capital through KredX’s invoice discounting services? Just upload your invoice on our online portal and wait for the disbursal of the approved invoice value. 

    FAQs on Commercial Loan:

    A. No, securing a commercial loan depends entirely on your eligibility for the advance. The process is simple for applicants who meet all the requirements laid by a financial institution. Applicants must hold a high credit score and a sound repayment capability to secure a commercial credit.