A commercial loan is the transfer of a certain amount of products or funds in debt from one company to another. There are 2 parties involved in financial relations: the lender and the borrower. The contract is drawn up in free form but must comply with the specified article of the civil code and not contradict the paragraphs prescribed in it.
Features of lending
The main feature is that an individual (not a banking organization) acts as a creditor. Funds are provided by partner companies. A firm may have several such loan contracts. Moreover, it may act as a lender in one contract, and as a borrower in the other.
Each transaction is individual, so the conditions for providing funds can vary greatly. The fundamental factor is the solvency of the counterparty. The greater the benefit of the lender and the confidence in the partner, the more favorable conditions can be “bargained for”.
The essence of commercial loans
The form of commercial relations implies the exchange of funds of enterprises with subsequent reimbursement of funds. A commodity loan is one of the varieties of a commercial loan.
Commercial loans are an important and integral part of doing medium and large businesses. It allows you to purchase the necessary equipment, components, products or services without withdrawing funds from the working capital. Borrowed funds help to effectively develop the business, constantly investing in its growth.
Unlike a standard bank loan (where the main role in making a decision is given to the client’s solvency and credit rating), the reputation of the company is important. Informal ways to identify the reliability of a borrower is an important aspect when deciding on the conclusion of a loan agreement.
Subjects
The acting parties in the loan agreement can be industrial and trade organizations, enterprises from the service sector, individual entrepreneurs and non-profit organizations.
The main subjects of credit relations:
- Borrower – a party that receives funds or material goods in debt. The person undertakes to return the full value of the goods or the amount with interest within the agreed period;
- Lender is the party issuing the loan, the owner of products or money. The lender provides a service with the aim of earning a profit in the form of interest.
There can be more than 2 parties to the contract, but the essence remains the same.
Objects
Goods, products, services rendered or work performed are accepted as objects. The main purpose of use is to generate profit for both parties. Several objects can be simultaneously present in the contract.
Types of commercial loans and their forms
The main types of commercial loans are:
- Deferral – the loan is repaid in one payment during the period specified in the agreement;
- Installment plan – payment is made in several installments, the total amount of which is equal to the loan;
- Lump sum payment – an agreement with clear terms of repayment (term, payments and frequency);
- Bill of exchange – a written commitment to repay the debt;
- Consignment – the provision of products or goods with subsequent reimbursement of the cost;
- Advance payment – an advance payment for a product or service.
The most popular types are combined options that combine the properties of several types of loans at once.
Conditions and methods of providing a commercial loan
The interest rate under the agreement is not regulated by the state. Conditions must be in the interests of both parties:
- Interest should be less than in the bank;
- The loan rate should reimburse expenses and bring profit to the lender;
- The value of products produced or sold should not rise too much due to interest.
The main forms of loan provision:
- promissory note – mandatory upon refund;
- open account – the borrower can receive the goods at any time;
- cash discount – discounts for early payment;
- consignment – you can pay for the goods after its sale.
How to get a commercial loan?
If two companies are interested in concluding an agreement, an agreement must be drawn up with a detailed description of the conditions and features of the loan. In order for the document to be drawn up correctly and in accordance with the current legislation, a professional lawyer must do this.
To conclude an agreement, it is necessary that both parties come to an agreement and sign the agreement. Then it is necessary for each subject to fulfill the conditions.
User fees
The rate is determined at the time of the contract conclusion. During the course of the agreement, the percentage cannot change if it is not spelled out in the conditions. The amount of interest is included in the regular payment, which the borrower must make on time. Like the bulk of the loan, the interest is binding. In addition to calculating interest, additional commissions may be established.
Pros and cons
The clear advantages of a commercial loan are:
- The ability to purchase the necessary goods, equipment or get money for business development immediately;
- More favorable lending terms than in banking institutions;
- Business development without using the funds in the company’s turnover;
- Possibility to choose a suitable form of a loan or to combine several types.
The disadvantages of commercial loans include:
- Increased risks on both sides. The lender can deliver a low-quality product or offer unfavorable conditions, and the borrower can give only part of the money, not return the funds at all, or delay the payment;
- Overpayments due to interest. With a competent calculation of expediency, both parties will benefit, therefore, the minus is insignificant.
A commercial loan is an excellent solution for the development of enterprises, as it opens up a lot of opportunities for the development and expansion of the business. It is important to carefully study the clauses of the agreement so that the terms of the loan are beneficial to both parties.