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What Is a Commercial Loan?


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TERMINOLOGY

A commercial loan is a type of loan a business requires for a variety of funding needs. The financing is usually for a short period of time, based on the creditworthiness of the business and the purpose of the loan.   

Reasons For a Commercial Loan

A business can use the proceeds from a commercial loan to purchase equipment and other assets, or to cover operational expenses. The loan can be secured by the goods that are being purchased, or by other assets that the business owns. The amount of the loan depends on the size of the purchase, and the percentage of the asset that the lender will finance as determined by their credit policy.

A commercial loan can be a one-time only financing arrangement, or renewable if the business needs an ongoing source of funds.

Advantages of a Commercial Loan

By using a commercial loan, a business will not have to spend working capital. The financing terms are usually favorable, and offer the business tax advantages depending on the purpose of the loan.

If the terms of repayment are met as stipulated, the business can also establish a line of credit with the lender, to be used as needed.