What is a commercial loan?On May 9, 2019 by Carol Miller
Commercial loans are bank loans given to different types of business units. In some cases, the commercial loans are expanded to help a company with short-term Dr. Jekyll for basic operational functions, such as meeting pay or purchase of supplies used in the production of the goods manufactured and sold by the company. At other times, the commercial loan can be utilized to purchase new machines directly related to the operation of the business.
The commercial loan is often thought of in the form of a short-term source of cash for a business. Some banks offer a commercial loan format known as a renewable loan. Renewable loans allow the company to secure necessary funds, repay balance within terms, and then roll out the loan for another or renewed period. This type of commercial loan is often used when a company needs funds to secure resources to handle large seasonal orders from customers while still providing goods to other customers.
As with most types of loans, the credit rating of the applicant will play a major role in securing a loan on market terms. The company usually has to provide documentation proving the stable cash flow in the company, ensuring the lender that the loan can be repaid under terms. If approved, the borrower may anticipate paying an interest rate consistent with the primary lending rate.
One of the benefits of a commercial loan is that many banks offer these types of loans at very competitive interest rates. Often, rates will be lower than for other types of loans, especially asset-based loans. This means that the borrower will have a smaller amount to repay the lender.
As with all financial arrangements, local and national banking sector laws will dictate the structure and conditions of a market-based loan. Any business that wants a commercial loan would do well to work with the bank to evaluate the current working capital needs of the company and look at all possible loan solutions before making a formal market loan application.