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3 Essential Types of Commercial Loans

Sometimes to get started properly as a small business, you need some extra funds in order to grow. Commercial Loans can be used for all sorts of things – from helping to maintain a healthy cash flow to purchasing a new piece of equipment to further your company.

In the last few years, the range of loans available for small businesses has grown with both online options and those given through commercial lenders. It’s all about figuring out the type of commercial loan which will work best for your needs.

Type of commercial loans

What Do You Need?

Before we look in depth at the different types of commercial loans, it’s useful to first ask yourself some questions about what you really need and how you intend to spend the loan.

  • How much do you need to borrow?
  • What will you be spending the money on?
  • When will you be able to repay the loan?
  • What is your personal credit history?
  • Does your business have a good credit history?

By doing a bit of research on yourself, you’ll be in a better position to answer the questions that potential lenders will be putting to you.

So What is A Commercial Loan?

Many people over-complicate what a commercial loan is. It can simply be seen as a loan that has been designed to be used for commercial purposes.

Traditionally it was largely banks who offered commercial loans however now they are also available from online lenders. There are also a number of different types of commercial loans – each designed to fit different types of businesses in different stages of growth.

What Are the Different Types of Commercial Loan?

There are several different types of commercial loans and different loans will fit different businesses depending upon their size, revenue, stage of growth and future plans.

Here are some of the most common commercial loans available today:

1. Term Loans

This is one of the most traditional types of loan. It involves you borrowing a lump sum of money, which is then repaid in fixed monthly installments.

These installments are something that you should budget for carefully and always ensure you pay on time to avoid missing repayments and affecting your credit history.

Term loans can be paid back over a number of years – this is agreed at the start of the loan although in some instances the term can be renegotiated.

Amounts of up to $500,000 can be borrowed depending on your company and your credit history as well as the individual lender you are dealing with. Generally, term loans require you to have a good financial history in order to qualify.

2. Short Term Loans

Similar to a Term loan, a short-term loan simply exists over a shorter time period.

Generally, short term loans are taken out for a few months rather than years. This means that the regular repayments are made weekly or daily instead of monthly or quarterly.

Short Term Loans are often useful to businesses when they are very small and looking to expand quickly. They help to ensure cash flow if a business is struggling short term but is expecting a payment imminently.

Always be careful when taking out a Short-Term loan that they really do end up being just short term. Often these can spiral quickly out of control if you are unable to pay them back in the short time frame.

3. Equipment Loans

If your business requires an expensive piece or set of equipment or machinery in order to really get off the ground, you may want to consider an equipment loan.

These can be used in a variety of businesses to help purchase things such as:

  • Vehicles
  • Manufacturing equipment
  • Computers

The amount you will borrow will obviously be relative to what you are purchasing, with the repayments based on the expected lifespan of the equipment.

Generally, the equipment that you’re buying will act as collateral for the loan you take, therefore your level of risk is often lower when getting an equipment loan compared to other types of loan.

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So, Which is the Best Commercial Loan For You?

As you can see, there are several different types of commercial loans – and each of them will fit very differently for different businesses or individuals.

Think carefully about exactly what it is that you need to borrow, and then budget exactly how you will make your repayments on a regular basis. It is essential that you do not miss or default on your repayments as this will jeopardise your credit history which will make borrowing in the future much harder.

Takeaway

Always seek expert advice if you are unsure about the best type of commercial loan for you. Lenders have decades of experience in helping people to find the right loans for their needs and could save you time and money whilst offering the ultimate peace of mind.

About author

Ivan Widjaya
Ivan Widjaya 3348 posts

Ivan Widjaya is the Owner/Editor of Noobpreneur.com, as well as several other blogs. He is a business blogger, web publisher and content marketer for SMEs.

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