Commercial Loan
Candlefocus EditorCommercial loans can be an effective way to fund the activities of a business. Banks and other lenders typically evaluate a borrower's creditworthiness before extending the loan. This creditworthiness is usually based on the borrower's credit score, historic financial performance, and other metrics. Commercial loans are often secured, meaning that the lender requires the borrower to use collateral, such as property or equipment, to guarantee the loan. Generally, the longer the loan term and the higher the amount being lent, the more collateral required for the loan.
When a business applies for a commercial loan, it must provide financial statements to prove its ability to repay the loan. These statements can include tax returns, cash flow statements, balance sheets, and accounts receivable and inventory reports. Lenders also like to see a business plan and other financial analysis that supports the use of the loan money.
Commercial loans can be short-term loans, with terms ranging from one to five years. However, many types of commercial loans can "be rolled," or renewed, to extend the life of the loan. Depending on the type of loan, the lender may rollover the payments for several years. This allows the business to keep the loan in place without having to pay back the full loan amount at the end of the original loan term. This can be quite beneficial, as it allows businesses access to capital while still having the option to repay the loan over an extended period of time.
The bottom line is that commercial loans are an effective way to fund a business’s operations and capital expenditures. With the right security, proof of a sound financial plan, and the ability to show creditworthiness, businesses may have success in their quest for a commercial loan.