Commercial Loans

Commercial loans constitute a big chunk of the loan portfolio. Banks compete for a commercial loans in the industry. These loans are extended to commercial enterprises for meeting their need for working capital, expansion of the business, business modernization, and renovation. Banks extend large amounts of credit to manufacturing companies, brokers, farmers, security dealers, service industries, and other financial institutions.  

 Period of the loan

The borrower determines the period and amount of loan required. Banks match credit terms with the borrower's specific needs. It is extended for a period of one year to three years and may be short-term or medium-term. 

Securities

1.  Marketable Securities
2. Certificate of deposits
3. Trade Receivables
4. Paid-up Shares
5. Plant and Machinery
6. Immovable  properties 

Repayment 

As per the contract, the repayment may be a bullet or balloon. However it is negotiated between the bank and borrower and keeping in view the cash flow of the project, the repayment period can be mutually agreed. It may be a checking account like an overdraft and the return is charged only on the outstanding balance or it may be a quarterly, half-yearly schedule of installments.

 Creation of Charge over securities;  Charge shall depend on the nature of the security being obtained. 

1. Marketable Securities; these can be discharged in favor of the bank.
2. Certificate of deposits; these can be discharged in favor of the bank.
3. Trade Receivables; These can be pledged by registering with the Security Exchange Commission or such other institution.
4. Paid-up Shares; By transfer letter in favor of the bank and registered with the CDC in favor of the bank or any other arrangement of registration of charge as per law in vogue.
5. Plant and Machinery; Charge is created by registering with Security and Exchange Commission or such other institution.
6. Immovable properties; such security is mortgaged with the bank in a form mutually agreed.