What You Need to Know About Commercial Loans

Posted by lendinguniverse on February 19th, 2020

Debt financing and taking out a small business loan is sometimes inevitable for a small business. A commercial loan is usually where a small business turns for its first loan. It can be difficult for a small start-up business to get a commercial loan because of the perceived risk. More mature small businesses can regularly obtain loans through commercial banks, though access may be difficult.  

These loans can provide you with the resources you need to increase the size of your business. Commercial loans can be very advantageous for your business. Let’s learn more about commercial loans. 

What are Commercial Loans?  A commercial loan is a debt funding agreement between a business and a financial institution such as a bank. These loans are typically used to fund major industry expenses and/or cover operational costs that the company may otherwise not be able to afford. Commercial loans are much different from getting a personal loan from a private lender. It's tough for a small business to get a commercial loan. Smaller businesses must rely on other lending services, such as lines of credit, unsecured loans, or term loans. 

How is a Commercial Loan Different from Other Loans? Commercial loans differ from other loans in many ways. First, the amount of money involved in commercial loans is usually greater than those issued to consumers for other reasons, because the projects that are being financed are much bigger than loans taken out by individuals. The application process for commercial loans is very thorough and the requirements to get an individual loan vary based on the lender. The road to obtaining a commercial loan can be difficult and lengthier than obtaining a loan from private commercial lenders. 

Types of Commercial Loans 

Installment Loans: Once approved for an installment loan, a business receives allits funds at one time and begins making payments (installments). The amount owed is the amount borrowed plus the interest and any fees and other charges that are applied to the loan. Once approved for the loan, the business can only use the funds from that loan for the specific purpose they agreed upon in the loan application. 

Equipment loan: Equipment loans are installment loans that are given to purchase or refinance a piece of equipment specifically, such as an oven or a forklift. The funds are tied directly to the purchase of that equipment and may not be used for any other purpose.  

Merchant Cash Advances: Businesses that accept credit and debit cards may be eligible to obtain funds with the obligation of paying it back from card revenues made in the future. Merchant cash advance loans can offer quick money to a business that finds itself in a tough spot financially.