Introduction to the Commercial Loan

Most people have an understanding of loans from their personal financial history. Commercial loans, however, can seem like strange, expensive things.

A Commercial loan is defined as a loan that is given to a business entity. The business may be any form of business organized in any way that a business can be organized. It might be a new start up business or a business that has been in existence for many years. It can be a Corporation or Partnership. It can also be a Sole Proprietorship. As long as the purpose of the loan is not personal, it is known as a Commercial loan.

The Commercial loan takes several different forms. A very common form of Commercial loan is called the "Line of Credit" loan. The advantage of this type of loan is that it both prevents excessive debt and ensures funds are available for changing business conditions. The line of credit loan establishes a certain loan ceiling. The Business can draw funds against this ceiling when they are needed. The amount borrowed is treated exactly as a loan balance and periodic repayments are required. Each time a repayment is made, the principle is posted to the line of credit bringing it back to its original amount.

If there is a sudden need or operating expense, the Business can again borrow funds up to the line of credit limit without the need for waiting or additional approval. It is the flexibility of the line of credit loan that makes it so valuable and popular with business owners. There are also regular term loans. These loans do not differ substantially from personal loans. They are lump sums of cash loaned for a set period of time and repaid at an establish interest rate. The only thing that makes them different from personal loans is their intended use and the identity of the borrower.

Most Commercial loan lenders offer loans that are backed by the Small Business Administration. These loans are known as SBA loans. Since the Small Business Administration is accepting a certain amount of the risk associated with the loans, the interest rates are often lower and the approval process is less difficult. There are two types of SBA loans. One is geared for start up of a new business and is the most well known. The other type is for continuing operating expenses of an existing business.

Commercial loans are an important part of any business plan. The old adage that it takes money to make money is very true. A business will need access to funds to get it established and to purchase the property and inventory needed to give it a chance to become profitable. It is a very rare business venture that can do this without the need for a loan. The Commercial loan has been the most important part of the banking industry since banking began. The interest earned by lending institutions have provided incentive for individual savings and it can be well said that Commercial loans have provided the funds that created the very World we live in today.

About the Author

Aazdak Alisimo writes articles on commercial loan information for