Commercial loans are offered across industries and from one commercial lender to another. 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. Before you apply for this kind of loan, you need to know what you are getting yourself into. One of the things that you need to know about commercial loans is that their purpose is not personal but more of the company. These loans are obtained to help get funds for your business financial transactions like your working capital and capital expenditures. When it comes to commercial and industrial loans, they are often provided in short-term and require collateral from you that is non-real estate in nature. This page will give you everything you need to know about commercial loans and their two classifications.
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. Comparing commercial real estate loans from commercial and industrial loans is the first thing that you should be doing if you plan to get a commercial loan. Of course, both of these loans are similar in the sense that they are intended for business purposes. And yet, you can see more differences between these two kinds of commercial loans.
For commercial real estate loans, they involve the provision of funds for you to take hold or construct profit-generating properties with the likes of office buildings, hotels, retail stores, and apartment buildings. 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. You can apply for balloon payments or pay in adjustable rates. For an existing property, you can get equity through this type of loan and then add it as investment in real estate.
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. 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. The use of these loans also helps to fund construction activity where no real estate is used 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. Your choice of commercial lender will also be paying attention to your financial ratios like inventory turnover and receivables aging and most especially keep a close eye on your operation and cash flows.