A Basic Guide to Commercial Loans

Commercial lenders offer a whole range of commercial loans for those who need them the most. There are two major types of commercial loans that you need to be made aware of. These two commercial loans in terms of classification include commercial real estate loans and commercial and industrial loans. Before you apply for this kind of loan, you need to know what you are getting yourself into. It is important that you understand that these commercial loans have been made available for businesses and not for personal purposes. They help provide funds for your working capital, capital expenditures, and other business requirements that are legitimate. When it comes to commercial and industrial loans, they are often provided in short-term and require collateral from you that is non-real estate in nature. This page will be a basic guide to commercial loans and the different options you have when you apply for one.

Before you apply for a commercial loan, it pays to have some basic knowledge of what you are putting yourself into, their terms, and the risks that you will be taking. Comparing commercial real estate loans from commercial and industrial loans is the first thing that you should be doing if you plan to get a commercial loan. Obviously, these loans are similar in a way that they have been established for your business. But then, major differences are also visible between these two types of commercial loans.

For commercial real estate loans, they involve the provision of funds for you to take hold or construct profit-generating properties with the likes of office buildings, hotels, retail stores, and apartment buildings. They are more difficult to obtain than commercial and industrial loans because of how volatile the real estate market is. This type of commercial loan has lower LTV values when compared with home mortgages. In terms of rates, they can be adjusted or can be paid in the so-called balloon payments. You can also get additional real estate investments by getting this loan to gain equity from an existing property.

On the other hand, commercial and industrial loans are being used by businesses that involve manufacturers, retailers, industrial companies, healthcare providers, hospitality companies, and professional firms. Filling seasonal revenue gaps, hiring workers, purchasing equipment and other capital operations and expenses are what these loans are used for. The use of these loans also helps to fund construction activity where no real estate is used as collateral. Other assets besides real estate property can be used as collateral when applying for this kind of loan. Nonetheless, the loan can be secured through other assets like future credit card receipts, accounts receivable, and equipment. The commercial lenders that you choose will also be monitoring closely your financial ratios like inventory turnover and receivables aging as well as operations and cash flows.

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