Think business and the first thing that strikes your mind is financing. A systematic financing option funds business requirements and enables them to kickstart operations and plan their expansion. Keeping that in mind, it is commercial loans that play a decisive role in how any business venture shapes up. There are several types of commercial funding options available. These depend on the type of business and diverse requirements that need to be met. Different types of commercial loans
- LOC loans It is that line of credit loan arrangement that shields businesses against unforeseen emergencies. It also covers stalled cash flow. These loans are used to purchase inventory and to fund business cycle requirements. Equipment or real estate cannot be purchased using these loans. They have low interest rates and are payable on the actual advanced amount. These loans are usually available for a year and are automatically renewed for an annual fee.
- Installment loans This loan is repaid over a specified period of time in equal amounts of 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 installments. The remaining principal balance is paid at the end of the loan term. These are similar to installment 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 in 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 collateral and has a lower interest rate. The collateral is used to pay off the loan in case of a 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 is a common option among international businesses ensuring payments to suppliers overseas. The amount is sanctioned for a specific period of time using this document.
- Bridge loans It is a short-term loan offering instant cash to fund an immediate requirement and is temporary. These help fund an organization until it secures permanent financing. The borrower should maintain an excellent credit score and give proof of income.
- Hard money loans It requires commercial property as collateral and carries a 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 is ideal in a situation where all parties involved share the profits and losses equally. It’s provided by investment firms and private lenders with at least two people applying together.
- Blanket loan Under this, the borrower or the company can combine multiple properties into a single financing arrangement. It enables the sale of a property or two and uses the proceeds for further investment without any penalties.
