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Think business and the first thing to strike your mind is financing. A systematic financing option funds business requirements, enabling them to kickstart operations and plan their expansion.

Keeping this in mind, it is the commercial loans that play a decisive role in how any business venture shapes. We’ve already pointed out the importance of commercial loans including their benefits and drawbacks in the previous article.

However, there are several types of commercial funding options available. These depend on the type of business and diverse requirements to be met. This article throws light on…

Different Types of Commercial Loans

Line-of-Credit Loans
It is that loan arrangement that shields the business against unforeseen emergencies. They also cover stalled cash flow. These loans are used to purchase inventory and for business cycle needs. Equipment or real estate cannot be purchased from these loans.

They have the lowest interest rates and, is payable on the actual advanced amount. These loans are usually available for a year and, are automatically renewed for an annual fee.

Instalment Loans
This loan is repaid over a specified period of time in equal monthly payments. It's important to know that it covers the principal amount and the interest and is used for any business need.

Balloon Loans
In this case, only the interest is paid in regular instalments. Here the remaining principal balance should be paid at the end of the term. They are similar to instalment loans. However, it's suitable for a business awaiting a specific date to start receiving payments.

Interim Loans
It's a short-term loan used to make periodic payments to continue operations while new facilities are under progress. It’s a longer-term financing option where the mortgage is used to pay the interim loan.

Secured and Unsecured Loans
These are the most common types of commercial loans available for businesses. A secured loan requires a collateral and has lower interest rate. The collateral is used to pay off the loan in case of default. Unsecured loans are usually given to businesses that are considered to be sound.

It's very unlikely for a new business to get an unsecured loan.
Letter of Credit
It’s common in international business affairs ensuring payments to suppliers overseas. The amount is sanctioned for a specific period of time using this document.

Bridge Loans
It’s a short-term loan offering instant cash to fund an immediate requirement and are temporary. Thy help fund an organization until it secures permanent financing. The borrower should maintain excellent credit score and give proof of income.

Hard Money Loans
It requires the commercial property as a collateral and caries high risk of default and a high interest rate. These loans are short-term and are offered in specific cases like foreclosure.

Joint Venture Loans
It's ideal in a situation where all parties involved share profits & losses equally. It's provided by investment firms and private lenders with at least two people applying together.

Blanket Loan
Under this loan, the borrower or the company can combine multiple properties into a single financing arrangement. It gives the convenience to sell a property or two and use the proceeds for further investment withou

Listed under: Business & Finance Added 3 months ago


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