When it comes to commercial loans, it is important that you understand that you can choose from different lenders and different kinds of loans. 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. Always know the difference between the two and what your options are before you take the plunge and decide to apply for one. One of the things that you need to know about commercial loans is that their purpose is not personal but more of the company. Getting funds for your working capital, capital expenditures, and other legit business financial needs is the main reason why these loans are obtained. Usually, commercial and industrial loans are provided for short-term funds and are supported by collateral that is not related to real estate properties. This page will be a basic guide to commercial loans and the different options you have when you apply for one.
Now that you are certain that you will apply for a commercial loan, you need to have some idea about the kind you are applying for and the terms that you need. In order for you to understand better what kind of commercial loan you are getting, know the difference first between commercial real estate loans and commercial and industrial loans. Obviously, these loans are similar in a way that they have been established for your business. And yet, you can see more differences between these two kinds of commercial loans.
Starting with commercial real estate loans, they are intended for commercial real estate properties where constructing or acquiring income-generating properties like retail stores, office buildings, apartment buildings, and hotels are involved. With the real estate market being volatile, you can say that getting this kind of loan is harder than commercial and industrial loans. The LTV values are lower for this commercial loan than home mortgages. The rates can be adjustable or can be in the form of balloon payments. They can also be used to gain equity from an existing property to use them for additional real estate investments.
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. You basically apply for this loan when you will need to fund for your operations and capital expenses like purchasing equipment, filling seasonal revenue gaps, and hiring workers. Using these loans also applies for funding construction activity that does not involve real estate as collateral. When one applies for this kind of loan, the use of real estate property as collateral is not utilized for security purposes. There are, however, other assets to help secure this kind of loan that you will be getting, namely, equipment, future credit card receipts, and accounts receivable. The lenders will also make sure to look at your financial ratios like inventory turnover and receivables aging and monitor your operations and cash flows.