Posted On: April 28, 2023 by Farmers Trust & Savings Bank in: Business Banking
Author: Eric Schable, Commercial Loan Officer
So what is commercial lending anyway, you may ask? It is the process of providing loans to businesses, rather than individuals. It’s an essential component of the financial sector, facilitating business growth and expansion. Without it, we wouldn't have places to shop, services to purchase and so much more!
In this blog post, we'll explore five things you may not know about commercial lending.
1. There are many different types of commercial loans
These loans are designed to meet different business needs. Some of the most common types include:
- Term loans – typically used when purchasing vehicles, equipment, or any other asset.
- Lines of credit – allows businesses to borrow money as needed for operating expenses or cash flow management.
- Commercial mortgages – typically used when purchasing or improving commercial real estate.
- SBA loans – government backed loans that offer additional financing options to small businesses.
Each type of loan has its own unique features and requirements, making it important to research and understand which option is the best fit for your business.
2. Collateral is often required
Unlike personal loans, where lenders may rely solely on creditworthiness and income to approve a loan, commercial lenders often require collateral. Collateral is any asset that can be pledged as security against the loan, such as property, inventory, or equipment. If the borrower defaults on the loan, the lender can seize the collateral as repayment.
3. Credit score is not the only factor considered
While personal credit scores are often the primary factor considered when approving a personal loan, commercial lenders look at a broader range of factors. These can include the company's financial statements, cash flow, collateral, and business plan. Lenders want to ensure that the business has a stable financial outlook and the ability to repay the loan.
4. Interest rates can vary widely
Interest rates for commercial loans can vary depending on the lender and the type of loan. The borrower's creditworthiness, the loan amount, and the length of the loan term can all have an impact on the rate. It's important to talk with your loan officer to discuss different scenarios to help determine the best course of action.
5. Commercial lending can be highly regulated
Commercial lending is subject to a wide range of regulations at both the state and federal levels. These regulations can impact everything from the types of loans lenders can offer to the fees they can charge. It's important for businesses to work with lenders who are knowledgeable about these regulations and comply with them.
Commercial lending is a complex and highly regulated industry. By understanding the various types of loans, collateral requirements, credit factors, interest rates, and regulatory landscape, businesses can make informed decisions when seeking funding for growth and expansion.
If you want to learn more about a commercial loan, contact one of our Commercial Loan Officers today, 712-262-3340.
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