What are Commercial Loans?
Commercial loans are used to fund short-term needs such as capital expenditures or operations costs that companies otherwise would not be able to afford. Commercial loans are not used for residential properties and borrowers are business entities rather than individuals.
While normally short term, commercial loans can also be extended indefinitely in a renewable loan period. This is normally done for seasonal or other regular operation costs.
Commercial loans usually require collateral to be confiscated if the borrower defaults or goes into bankruptcy. Collateral can be a property, plant, or equipment. Further cash flow generated can also be used as collateral. Borrowing entities need to prove their companies have a good credit history, otherwise the individual owner(s) of the entity must make a personal guarantee. Once the loan is made, the business then needs to provide monthly financial statements during the loan term. For larger items the company may need to take out insurance.