Types of Commercial Loans

Commercial loans are used by a variety of different companies for different purposes. There are different types of commercial loans and properties. Businesses use these loans for a variety of purposes, from buying real estate to stocking store shelves. One type of commercial loan is called an acquisition loan. Acquisition loans are used by companies to purchase property. This might include land and a building, for example, whether it is retail, industrial or other. A similar type of loan is the acquisition and development loan.

An acquisition and development loan is used for two purposes — to buy property then develop the property. With these loans, interest is paid on funds distributed using a voucher control system. Loan to value ratio is a formula that is calculated on acquisition and development loans and is based upon the value of the property when it is developed. A company might use one of these loans to purchase a commercial lot on which a store is built.

Another type of commercial loan is the asset based loan. As the name suggests, this type of loan requires collateral, which makes it asset based. An asset based commercial loan can be used for any purpose. It can be used to purchase land, construct a building, perform renovations, buy inventory, pay debt, invest in advertising — basically, it can be used in any manner the borrower wants. A loan officer can speak to you in more depth about what collateral qualifies as security for this loan.

If you want to open a small business, consider applying for a loan with the Small Business Administration, abbreviated SBA. This organization helps small businesses get started by proving credit and counseling. There are certain criteria that must be met; to find out more, visit the official SBA website. Maybe you already have a small business and want to make some renovations. For any size business, small or large, there are construction improvement and rehabilitation loans. These loans are used for repairs and renovations.

Many real estate investors use bridge loans. These loans provide a temporary source of financing until the investor can acquire a permanent form of financing. They are high risk and often come with higher interest rates than traditional types of commercial loans. However when utilized successfully, bridge loans can be good for both the borrower and lender. They are ideal when time is of the essence, for example if an investor were trying to purchase a foreclosure.

Commercial loans can be refinanced, which means the terms are changed in some way for the benefit of the borrower. Refinancing at the right time can lower your interest rate and monthly payment. Another way a business might get out of financial trouble is with a consolidation loan, where all debts are placed into a single loan. This is more convenient because the borrower only has to make one payment each month rather than many, and they are able to repay their creditors using the loan thus making a positive difference in their credit rating. Credit rating will also improve when the consolidation loan is repaid.

The different types of commercial loans are used by a wide range of businesses, both for-profit and nonprofit. If you are a business owner or want to open a business, the SBA would be a good place to start. From there, you can investigate the other types of loans you might require to fulfill your business goals. If you can, consult a financial advisor before considering any type of commercial loan. They can help you acquire the best loan for your needs and help you choose a reputable lender.