Commercial Loan
A commercial loan is a financial arrangement in which a business borrows money from a financial institution to fund its operations, expansion, or other business activities. These loans are typically used for capital expenditures, working capital, or to finance large projects. Commercial loans often have specific terms and conditions, such as interest rates and repayment schedules, tailored to the needs of the borrowing business.
4 Key excerpts on "Commercial Loan"
eBook - ePub- Joseph W. Bartlett, Peter Economy(Authors)
- 2011(Publication Date)
- For Dummies(Publisher)
...The most common loan types include A microloan sponsored by the Small Business Administration A line of credit from a commercial bank A long-term equipment loan from a large manufacturer’s captive financing company In short, a loan is simply borrowed money that must be repaid to the person or business that provides it. How that money is repaid — and the requirements to which the borrower must adhere to obtain the loan and remain in the lender’s good graces — is what makes one loan different from another. Attention: important lending terms ahead! The world of commercial lending is chock-full of unique terminology. Not only will knowledge of the meaning of this jargon make you more comfortable when you’re talking to potential lenders, it also will help you be much better able to effectively analyze whether a loan will be advantageous to you. Here are some key lending terms for you to become familiar with before you dive into the lending pool: Term: The length of time the borrower has to repay the debt. In the case of a five-year loan, for example, the borrower is expected to repay the debt in full by the end of the five-year loan term. Short-term loan: A loan with a term of less than one year. Long-term loan: A loan with a term of one year or more. Principal: The amount borrowed. Interest: The fee paid currently or added to the loan amount — most often expressed in percentage terms as an interest rate — to pay the lender for providing and servicing the loan. Generally, the higher the risk, the higher the interest rate. Collateral: Something of value (a specific asset) that the borrower pledges to the lender in exchange for a loan. When a borrower takes a mortgage loan to buy a house, for example, the house is pledged as collateral for the loan...
eBook - ePubThe Blueprint To Commercial Real Estate Investing: Your Guide To Make Sustainable Stream Of Passive Income Through Smart Buy
Achieve Financial Independence.
- Michael Henry(Author)
- 2020(Publication Date)
- Michael Henry(Publisher)
...Loan Terms: When you actually get a loan, what are the major things that are going to affect the economics of your deal, that are going to affect the cash flow of your property when you buy a commercial real estate property regardless of product type? So these are five things that are going to affect your cash flows and that will be incorporated into your financial analysis, your financial modeling and your underwriting for commercial real estate deal. So number one is an interest rate. So if you buy a home and you put a mortgage on that home, you're going to have an interest rate of your loan. So maybe 4%, 5%, 6% it really depends. So for commercial properties, it's really the same thing. You'll have an interest rate and what that interest rate is made up of is an index plus a spread and the spread is based on the risk. So this is what I mean if you take out a loan and it's a 10 year loan term meaning that after 10 years, you have to pay the loan back in full. So that lender has their money out in the market for 10 years, that lender is going to take some sort of an index which is going be a risk free rate of return. So in the US, this is usually benchmark off of the corresponding US Treasury bill. So for a 10 year loan, you'll take the 10 year US Treasury rate and that will be your index. And then the lender is also going to add some sort of a spread to that. So maybe the 10 year US Treasury rate is 3% so that'll be your index and then you'll have some sort of spread based on risk. So for the least risky deals, you'll have a lower spread and for the most risky deals, you'll have a higher spread. And this is meant to compensate the lender for their risk. So the lender says: I can invest in bonds essentially risk free for 3% a year and I'm investing in real estate because I want to take a little bit more risk. But I still believe real estate is a good investment but I need to be compensated for that risk and also the work associated with it...
eBook - ePubGetting Started in Private Practice
The Complete Guide to Building Your Mental Health Practice
- Chris E. Stout, Laurie C. Grand(Authors)
- 2010(Publication Date)
- Wiley(Publisher)
...In recent years, some banks have set up professional divisions with personal bankers who are experienced in meeting the needs of healthcare providers. Bank borrowing may be the least expensive source of debt financing for secured and unsecured working capital loans, equipment loans, and real estate loans. A practice may develop a relationship with a local commercial bank that assists in the practice’s financial planning process. Short-term loans offered by commercial banks have several unique characteristics. • They are usually extended for a period of 90 days or less and may be secured or unsecured, depending on the amount of risk the bank faces. • When a bank loan is secured, the lender normally executes a security agreement in which the practice pledges a certain business asset as collateral. • A practice may pledge its accounts receivable (billings to clients and third-party payors for services rendered but not yet collected) as an asset. The amount in accounts receivable is an asset that represents money owed to the practice. • A commercial bank may also require your personal guarantee based on your personal assets. • If the practice does not pledge any collateral against the loan, the bank may extend the loan on the practice’s full faith and credit. Leasing Companies. Leasing has become an increasingly popular source of debt financing. Almost any type of property can be leased: • Computer systems • Equipment • Furniture • Office space As an alternative to normal debt financing, leasing offers you greater flexibility and convenience because the lessor (the institution, usually the bank, holding the lease) takes on some of the responsibilities of ownership, including maintenance and disposal. If you are reluctant to borrow, leasing can be an attractive alternative. The interest rate on the lease will most likely be somewhat higher than on a loan extended by a commercial bank, because the lessor assumes greater responsibility...
eBook - ePubThe Law (in Plain English) for Galleries
A Guide for Selling Arts and Crafts
- Leonard D. DuBoff, Christopher Perea(Authors)
- 2020(Publication Date)
- Allworth(Publisher)
...On the other hand, positive covenants spell out those things that you must do, such as carry adequate insurance, provide specified financial reports, and repay the loan according to the terms of the loan agreement. IN PLAIN ENGLISH A covenant is defined as type of arrangement that is similar to a contractual provision. It can be used for the purpose of promising to do something or agreeing not to do something. Note that, with the lender’s prior consent, the terms and conditions contained in the loan agreement may be amended, adjusted, or even waived. Remember that you can negotiate the loan terms with the lender before signing. True, the bank is in the superior position, but legitimate lenders are happy to cooperate with qualified borrowers. COMMUNICATION WHEN PROBLEMS ARISE Once a loan is approved and disbursed, the borrower must address a new set of obligations and liabilities. Of course, if all goes according to plan, the loan proceeds are invested, the business prospers, the loan is repaid on schedule, and all parties live happily ever after. However, the business world is fraught with uncertainty. If the business falters and revenues tumble, the borrower may not be able to meet the debt obligations. In this unfortunate event, it becomes imperative that the borrower act responsibly. View the lender as a potential ally in solving problems, rather than as an adversary. At least initially, banks are not eager to exercise their right to foreclose on the collateral securing the loan at the first indication that the debt may not be repaid. They likely have no experience in marketing the types of collateral involved nor do they want to run a distress sale, which, at best, would probably bring in only a fraction of the money owed...
