Commercial loans are offered across industries and from one commercial lender to another. It is important that you have some idea what you are getting yourself into when it comes to getting commercial loans. They are commercial real estate loans and commercial and industrial loans. It is important that you have some idea of these commercial loans before getting your hands on them. A commercial and industrial loan, for instance, is intended for company use rather than for personal use. They help provide funds for your working capital, capital expenditures, and other business requirements that are legitimate. 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 give you everything you need to know about commercial loans and their two classifications.
If you are certain that you will be applying for a commercial loan, you have to know what kind you are getting and what terms apply to you. 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. From their names, you can say that they are similar because they are made for businesses. 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. This type of commercial loan has lower LTV values when compared with home mortgages. The rates can be adjustable or can be in the form of balloon payments. You can also get additional real estate investments by getting this loan to gain equity from an existing property.
When it comes to commercial and industrial loans, though, they are used across business sectors like industrial companies, manufacturers, retailers, healthcare providers, professional firms, and hospitality companies. Filling seasonal revenue gaps, hiring workers, purchasing equipment and other capital operations and expenses are what these loans are used for. Using these loans also applies for funding construction activity that does not involve real estate as collateral. Other assets besides real estate property can be used as collateral when applying for this kind of loan. Even so, there are other assets that can help secure this particular type of commercial loan that you will get like accounts receivable, equipment, and future credit card receipts. 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.