8 Different Types Of Commercial Loans
When a business needs money for real estate or to support everyday operations, there are many ways they can obtain financing. The different options available all come with their own terms, uses, and rates. This makes it easier for businesses of all sizes to find a financing option that suits their needs.
Commercial Real Estate Loans
Outlined below are the top options for businesses that wish to finance a real estate purchase.
Long-Term Commercial Mortgage
A commercial real estate loan from a lender such as a bank works in a similar manner to a home mortgage but generally has a shorter term and a broader range of potential uses. Commercial real estate loans do not generally exceed 20 years, with most of them bearing terms of five to 10 years. Like home mortgages, these loans are available with a fixed or variable rate. With a fixed-rate commercial mortgage, the interest rate and monthly payment will remain the same. The interest rate can go up or down according to market trends with a variable mortgage, however, which means your monthly payment may change.
Business owners with an existing mortgage who wish to take advantage of a lower interest rate than the one they are currently paying can use a commercial real estate refinance loan. Although these types of loans involve costs and fees, many business owners end up saving significant money overall because of lower monthly mortgage payments and a reduction in their cumulative debt.
An interest-only payment loan is designed for businesses that are anticipating receiving a significant payout in the future instead of a steady stream of monthly income from the outset of their operations. Also known as balloon loans, the payments on these loans are only made on the interest amount initially before a full balloon payment is due at the end of the term. It is worth noting that the terms on these types of loans are fairly short, spanning between three and seven years. Some business owners will use this type of loan to build a commercial property with the goal of refinancing the lump sum when it becomes due.
A commercial real estate bridge loan is a unique type of short-term loan that is geared toward financing an immediate opportunity in real estate. It essentially bridges the gap between the business’s immediate need for financing and a better long-term solution.
The terms tend to be on the shorter side, spanning between a few months and a year. These loans are secured with collateral, which is usually the real estate that the loan is being used to purchase or renovate. They often have high interest rates but can be very quick to fund.
A commercial real estate blanket loan allows businesses to fold several properties into one loan for greater convenience. This means that, for example, a business owner who has 12 properties inside of a blanket loan and wants to sell four of them may do so without penalties or being required to pay off the entire loan.
Although this can be a convenient option that streamlines paperwork and payments, these loans do tend to be difficult to obtain and involve large payments and default penalties.
Other Commercial Loans
When a business needs a loan for something other than real estate, they have several options available.
Business Line of Credit
A business line of credit operates in a similar manner to a credit card in the sense that it enables the business owner to draw available money when they need it, as long as they have not reached a set maximum amount.
This means there is revolving capital available to purchase equipment, handle emergencies, or make the most of investment opportunities without needing to get a separate loan each time. A business line of credit is a particularly good option for a seasonal business with cash flow needs that tend to fluctuate.
Government Business Loans (SBA Loans)
The US government offers loans through the Small Business Administration (SBA). These SBA loans tend to have lower interest rates than ones offered by banks and are designed to help small businesses in need with fixed assets. The SBA itself does not make the loans. Instead, it works with banks and guarantees them that they will be paid back.
A term loan is a basic type of business loan that involves borrowing a set sum of money from a lender or bank and paying it back in a period of time that is agreed upon between the parties. It may be short term or long term, and the payments are made in monthly installments on a set schedule.
Contact the Business Loan Specialists at Woodsboro Bank
To learn more about the various types of commercial loans that can support your business, reach out to the community bankers at Woodsboro Bank. We provide a range of lending solutions that can meet the needs of all aspects of your business.
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