Commercial loan: conditions, forms, rates

Businesses often pay each other with a commercial loan. Thus, it is more convenient for each company to attract borrowed funds than to extract its own money from circulation. Especially this method is considered relevant for small firms that simply do not have their own savings, so for development they need to attract funds from banks or third-party organizations. Commercial credit is considered an actual way out of a difficult situation, and it is presented in several forms. It establishes a variety of rates and conditions, so you should understand the design rules well to ensure the efficient use of borrowed funds.

The concept

Although it is considered a loan, it has many specific features:

• state or commercial banks do not issue loans of this kind, since they cooperate with each other for this company, therefore, an intermediary in the form of a banking institution is not involved;
• no special license is required for such a process;
• such a transaction is not a separate process, therefore, a special contract is not drawn up for it, since only an additional agreement to the main contract is formed;
• the lender and borrower are the companies and enterprises themselves;
• it is allowed that the participants were an individual or individual entrepreneur.

Loans provided by commercial banks are not considered commercial, as they are presented in cash. When an agreement between enterprises is drawn up, the loan is usually presented in salable form. Under such conditions, the transaction is an addition, therefore, simple writing is suitable for its expression.

What is the difference from bank loans?

A commercial loan is a transaction whose parties are different companies that do not have a banking license. It can be provided by both the seller and the buyer, so it can be expressed as installments, deferrals, advance payments or prepayments.

A commercial loan has many differences from the standard loan offered by banking organizations.

Thus, commercial banks provide loans that are significantly different from commercial loans, so you should not confuse these concepts.

Commercial loan forms

It can be presented in different forms, each of which has its own characteristics. A specific form is negotiated in the process of forming a contract between companies. At the same time, it is decided what the procedure for granting a loan will be, what tariffs and other conditions for a commercial loan will be set. In most cases, such a process takes the form of an additional agreement to the main contract.

If the main contact is formed in writing, then the contract for commercial credit is made in the same form. The same applies to the registration of documentation.

Forms of commercial credit are numerous, but are most often presented in the following forms:

• Prepaid expense. It is a partial payment made by the buyer, therefore he acts as a creditor. Based on the terms of the contract, he pays its full cost until the goods are received directly. The loan term starts from the moment when the advance payment is transferred, and ends on the day when the buyer receives his goods.
• Prepayment. Based on the terms of the agreement, the buyer pays all the goods in advance, so he is also a creditor. Prepayment assumes that the services are provided or the goods are shipped some time after the seller receives the money. Therefore, the loan term may vary significantly depending on the conditions specified in the contract.
• Deferral The provision of a commercial loan of this form assumes that the seller ships goods or provides a service, and at the same time payment for them will be received by him later. It can be represented by several money transfers or one large payment. The time when funds should be transferred is specified in the contract in advance. The seller acts as a creditor, therefore, he may demand timely return of funds. If this condition is not met, then penalties for commercial loans are charged. They can be specified in the agreement or calculated based on the size of the refinancing rate.
• Installment plan. The lender is the seller who wants to sell their goods, so he agrees that they are not paid in full, but partially in equal installments. A special schedule is drawn up, on the basis of which the buyer must deposit funds for the goods.

Thus, a commercial loan can be presented in different forms, and it is also provided in different ways. Each method has its own characteristics, so it should be studied by sellers and buyers separately.

Bill credit

It is considered the most popular method of providing a commercial loan. For calculations, a written obligation is used, which sets out the exact amount of a commercial loan. These funds should be provided by the borrower to the lender.

To use this method of loan can be used various bills:

• Solo bill. It is called differently simple, and at the same time, to use it requires two parties to participate in the transaction. A specific period is set by the end of which the drawer, who is the borrower, pays the creditor the amount specified in the agreement. Typically, such a bill is used in domestic payments.
• Draft. Such a bill is called transferable. He assumes that an additional third party is involved in the transaction. The lender, the lender, indicates the lender, presented by the borrower, in what time it is necessary to pay the goods under the contract in favor of the third party, called the remitter. Typically, such a bill is used for interstate settlements. The remitter under such conditions is the bank of the exporter.

Thus, it is optimal for Russian companies to use a simple bill of exchange for organizing a commercial loan.

Factoring and Forfeiting

Factoring is a popular form for providing commercial credit. It consists in the fact that a bank or a special firm collects receivables from other client enterprises. The company buys the debt from another lender, which initially must be paid the right amount. But at the same time he receives only some part of the amount, and the remaining funds are transferred as soon as the money is received from the debtor. Sellers resort to this method if debtors do not return the funds at the appointed time, so due to the speed of receiving money, they can put them into development or use it in circulation.

Forfaiting is a form of factoring, but the difference is that the refinancing is implemented in foreign trade relations, and also requires a bill of exchange.

Leasing

This type of commercial loan is becoming increasingly popular among Russian organizations. It consists in the fact that certain real estate, vehicles or other expensive property is transferred to long-term lease to another person. At the same time, it remains possible to redeem this object in the future, for which a residual value is established.

The most commonly leased for the acquisition:

• real estate objects that are residential or commercial;
• Vehicle;
• equipment necessary for the operation of a particular organization.

With such a loan, purchases are made for a leasing organization, which acts as a creditor for the end user of the equipment. An agreement is necessarily concluded between the two parties, which sets out the procedure for leasing, as well as the time periods when it is possible to redeem the subject of the agreement.

Consignment

It is considered a common form of commercial credit among Russian entrepreneurs. In another way, this process is called "goods for sale." The procedure consists in the fact that the owner of the item, which is the exporter, provides the consignor, represented by the intermediary, a specific product. It is then sold to the final consumer.

The intermediary does not pay for the goods immediately, but after the sale. If it is not possible to sell the goods, then it is returned to the manufacturer, therefore it is considered that the transaction did not take place.

This method is used in a situation when a new product is delivered to the market, so sellers have doubts that it will be in demand.

Open account

Such a commercial loan is used by companies that have good and long-established relationships. It consists in the fact that certain batches of goods are systematically delivered to the buyer, and at the same time, a deferred payment is provided.

Such a transaction does not require documentation for each delivery, but stipulates in advance what is the maximum limit of arising debt. If the buyer does not pay bills on time or the goods are not provided, then this is a violation of the contract. A penalty is charged for this, and the commercial loan rate may be prescribed in the agreement or may be calculated on the basis of the refinancing rate, which is set at a particular point in time.

Settlement discounts

Suppliers of goods can motivate buyers who make timely payments for delivered goods. At the subsequent signing of the contract with such a client, the suppliers offer discounts.

The main condition for using such a commercial loan is the need for timely payment by customers.

Seasonal loan

This option of lending is used only by enterprises operating in the seasonal business sphere. To do this, the seller sends the goods to the buyer in advance, which allows the recipient to form optimal stocks before the sale or season.

Goods are paid after the end of the season, when the debtor receives the necessary funds for this.

The advantages of such a loan for the seller include the possibility of savings on the lease of the warehouse, and the buyer receives a deferred payment.

Board size

Commercial loans are in almost no way regulated by Russian law. Since it is possible to use goods or money for a certain period of time, a fee for such a loan is required.

The commercial loan rate is much lower than bank interest, so the use of this method is considered a profitable process for each company. It remains unchanged in the process of cooperation between companies.

The interest on a commercial loan is usually set in the agreement itself drawn up between the two parties. This takes into account some important points regulated by the market itself:

• the rate should be lower than in a bank or other credit organizations, since otherwise this method of lending would not be attractive to companies;
• the fee should cover the costs of the creditor, otherwise it would be impractical to provide goods or funds;
• loan payments should not lead to a decrease in the competitiveness of goods.

It is allowed to additionally indicate in the contract the amount of forfeits and fines if the main points of this document are violated. For this, direct percentages of the established loan amount can be prescribed, and if such information is not available, then information from the legislation is used, therefore, the size of the Central Bank refinancing rate is taken for calculation.

Dates and penalties

With long-term cooperation between companies, a fee for using a commercial loan may not be set, therefore, interest is charged only if the terms of payment or delivery of goods are violated. In this case, interest is a fine for non-compliance with the terms of the contract.

Usually, there are no fixed deadlines for a commercial loan agreement, so there are some time intervals.

pros

The positive aspects of such a loan include:

• without obtaining a loan from the bank, it is possible to obtain the necessary goods without payment or to receive payment for goods that have not yet been sent;
• the lender increases turnover if he is a supplier;
• the buyer can lay low interest for such a loan in the cost of goods;
• enterprises with the help of such an offer support each other;
• firms maneuver their capital;
• reduced need for standard bank loans.

Due to competent and official registration, it is possible to recover funds from the borrower forcibly through the court.

Minuses

Commercial credit has not only advantages, but also some disadvantages:

• limited by available stocks at the supplier or solvency of the borrower;
• due to regular changes occurring in the market, it is not always advisable to use such an offer;
• product prices are constantly changing, and at the same time, the buyer, having paid a large consignment of goods, will no longer be able to change his mind;
• the borrower can always declare bankruptcy, so the lender may lose his funds;
• there is a possibility that the parties will not conscientiously fulfill the terms of the contract.

Thus, commercial credit is provided by companies that do not have a banking license. It can be presented in different forms, so the option that is ideal for specific organizations is selected. The fee is set by the two parties, but it is always less than the interest on bank loans. Such a loan has both pros and cons, so each company should carefully evaluate the effectiveness and feasibility of such a contract.