Corporate Term Loan in India: Rates, Eligibility & Process
Corporate Term Loan in India: Rates, Eligibility and Process
Overview
A corporate term loan is one of the most common ways businesses raise capital for long-term needs in India. Whether you are buying new machinery, expanding a factory, or refinancing existing debt, a corporate term loan gives you a fixed sum upfront that you repay over a set period. Banks like SBI, HDFC Bank, ICICI Bank and Axis Bank are among the most active lenders in this segment.
These loans are governed by RBI’s prudential lending norms and the borrowing company must comply with Companies Act 2013 requirements. The loan tenure typically ranges from 3 to 10 years, and repayment is structured as equated quarterly or monthly instalments (EMI/EQI).
For large infrastructure and project finance deals, RBI has also issued specific guidelines under its project finance framework that lenders must follow. This includes escrow arrangements, debt service coverage ratios, and independent engineer certifications.
Interest Rates
Corporate term loan rates in India are linked to the lender’s Marginal Cost of Funds based Lending Rate (MCLR) or the External Benchmark Lending Rate (EBLR). For floating rate loans, banks typically price at EBLR plus a spread that reflects the borrower’s credit risk.
| Lender | Indicative Rate (2024-25) | Benchmark |
|---|---|---|
| SBI | 9.00% – 11.50% p.a. | EBLR / MCLR |
| HDFC Bank | 9.25% – 12.00% p.a. | MCLR |
| ICICI Bank | 9.10% – 11.75% p.a. | EBLR |
| Axis Bank | 9.30% – 12.25% p.a. | MCLR |
Fixed rate options are also available, especially for mid-market corporates through NBFCs and development finance institutions like SIDBI. The effective rate depends on your credit rating, collateral coverage, and debt service coverage ratio (DSCR).
Eligibility
Eligibility for a corporate term loan varies by lender, but most banks look at the following:
- The company must be a registered entity under Companies Act 2013 or LLP Act 2008
- Minimum 3 years of profitable operations (some lenders accept 2 years for rated entities)
- Minimum annual turnover of Rs 10 crore (varies by lender and loan size)
- Credit rating of BBB- or above from CRISIL, ICRA, CARE or India Ratings for large loans
- Satisfactory CIBIL commercial credit report
- Acceptable debt-equity ratio, typically below 3:1
- Adequate collateral such as immovable property, plant and machinery, or promoter guarantee
Documents Required
- Certificate of Incorporation and Memorandum and Articles of Association
- Audited financial statements for the last 3 years
- Projected cash flow statements and business plan
- Board resolution authorising the borrowing
- KYC documents of directors and promoters
- Property documents if immovable property is offered as collateral
- Existing loan sanction letters and repayment track record
- GST returns for the last 12 months
Application Process
Step 1: Prepare Your Proposal
Create a detailed credit memo covering the purpose of the loan, repayment plan, financial projections and collateral details. Banks review this before granting an in-principle approval.
Step 2: Submit Application
Submit the application along with all documents to the relationship manager at your chosen bank. Large borrowals above Rs 25 crore usually go to the bank’s mid-corporate or large corporate credit team.
Step 3: Credit Appraisal
The bank conducts a detailed credit appraisal including financial analysis, site visits, legal due diligence on collateral and reference checks.
Step 4: Sanction and Documentation
On approval, the bank issues a sanction letter with terms. Legal documentation including hypothecation deed, mortgage deed and personal guarantee agreements are executed.
Step 5: Disbursement
Funds are disbursed to the company’s current account, usually in one tranche for term loans. Project loans may be disbursed in stages linked to milestones.
Frequently Asked Questions
What is the maximum tenure for a corporate term loan in India?
Most banks offer corporate term loans for up to 7 to 10 years. For infrastructure projects, the tenure can extend to 15 years under RBI’s project finance guidelines.
Can a startup avail a corporate term loan?
Most banks require at least 2 to 3 years of operations. However, SIDBI and some NBFCs have special startup credit products. Government schemes like CGTMSE can help startups get loans without collateral.
Is collateral mandatory for a corporate term loan?
For smaller loan amounts, some banks offer clean term loans based on cash flow. However, for loans above Rs 1 crore, most lenders expect some form of security such as property or machinery hypothecation.
How long does the approval process take?
For well-documented applications, in-principle approval can come within 7 to 15 working days. Full disbursement after legal documentation takes another 15 to 30 days.
