Commercial Business Loans

By: EconomyWatch Content   Date: 17 December 2009

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A commercial business loan is similar to a personal loan, except it’s used to fulfill business requirements and is usually secured by business assets. There are various commercial loan funding sources like leasing, commercial finance¸ real estate, investment banking, invoice factoring, government loans, purchase order advances, and venture capital.

 

Commercial Business Loans: Advantages

The advantages of commercial business loans are:

·        Ownership retention: Instead of selling your stake in the company to an investor, you retain your share of ownership of your company by securing a commercial loan. Unlike an investor, the lender only gets the interest due on the loan, not a share of the profits or a stake in the company.

 

·        Financial freedom: The proceeds from the loan can be used for any purpose, including paying off current debts to avoid increasing interest rates and pending payments. A loan for commercial use also allows you to preserve your working capital to invest in meeting capital expenses.

 

·        Cash flow management: A commercial loan gives you access to capital with minimal down payments and the flexibility to design a schedule that suits your repayment requirements. You can map your repayment strategy to your projected cash flow and minimize spending of your working capital.

 

·        Equipment ownership: Unlike other forms of financing, if you have taken a commercial loan against any equipment, it is protected and you remain the legal owner.

 

·        Tax advantages: Interest payments on your loan are tax deductible. 

 

Types of Commercial Business Loans

The different types of commercial business loans are:

·        Acquisition loans: The purpose of this loan is to acquire property or a different business

·        Acquisition and development loans: The purpose of this loan is to acquire property or business, and develop it.

·        Asset-based loans: In this case, collateral is pledged as a security against the loan.

·        Bridge loan: This type of loan is used temporarily until a permanent financing mechanism is set into motion. Bridge loans are used for acquisition, buyouts, foreclosures, and construction purposes.

·        Construction loans: Construction loans are used to construct buildings or renovate properties, with the land or other tangible assets being used as collaterals.

·        Debt loans: These loans consolidate the debts into a single loan and chalks out a repayment plan.

·        SBA loans: The Small Business Administration (SBA) loans are used to assist small businesses and the agency acts as a guarantor for the loan.

 


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