Commercial Loans Explained:
Commercial loans are a form of financing offered by banks or financial institutions to qualifying business entities. A corporation or business entity may secure a corporate loan for a variety of reasons; in some instances a commercial loan may be desired to assist a particular company with short term financing to help fund basic operational functions, such as paying employee salaries or for the purchase of capital equipment and supplies that are needed to produce and subsequently sell the company’s goods. Commercial loans may also be utilized to purchase new equipment or machinery that is directly tied-into to the general operation of the business.
Commercial loans are typically provided to resolve short-term cash flow problems that a business may face. Some commercial lenders will offer commercial loans in the form of a renewable loan; these renewable loans enable the underlying business to secure necessary funds and if the balance is repaid in good faith, the business may roll the loan over into a second period. This form of commercial loan is typically employed when a business needs funds to secure various resources to satisfy larger seasonal orders from customers while still providing goods or services to other customers.
Qualifications needed to receive a Commercial Loan:
Similar to other areas of financing, the qualifications surrounding a commercial loan most rely on the underlying firm’s credit worthiness. To satisfy such credit requirements, the business will present documentation that must prove the stable cash flow of the company, effectively ensuring that the lender can meet the obligations expressed in the loan’s repayment schedule. If approved for commercial loans, the borrower must realize the attached interest payments that are required in addition to the principal of the loan.
Commercial Lendersand Specifics Associated with a Commercial Loan:
In the United States, a commercial lender is a financial institution that specifically offers commercial loans to businesses in need of short-term financing. The commercial loans offered by these institutions are typically backed by hard collateral, specifically real estate or real property, although the collateral can also include non-conforming assets.
Commercial lenders are typically mutual companies, private lending firms, hard money lenders, commercial banks, and other financial intermediaries. These institutions, which offer commercial loans, will deliver various standards on which they will base their loan criteria off of; regardless of the criteria however, all loans are evaluated based on the company’s ability to meet the obligations found in the loan requirement.
Commercial loans are typically offered as hard money or bridge loans, streams of finance that close quickly (in as little as a couple of weeks). Commercial bridge loans are a form of short term financing which are typically easy to obtain for as long as there is remaining equity that is sufficient to cover the commercial lender’s risk capital.
Commercial loans that are offered in this capacity will overlook securitization, property issues, credit problems and incomplete permits in exchange for a higher rate return. That being said, these types of commercial loans will seek to offset the risk by lending at a lower loan to value ratio, usually fewer than 65% of the property’s value.
The price, meaning the interest payment attached and the amount of the loan is dependent on the length of the bridge loan offered and the company’s balance sheet.