Types of Commercial Loans


There are actually several commercial loan types. Some are immediately recognizable, while others are more niche. When a business needs additional capital, it might seek a debt instrument. Of course, there are a few differences in how these are structured. Terms might well be long or short. While interest rates vary. Collateral may or may not be required. Read on to learn about the most common types of commercial loans. 

Types of Commercial Loans

Commercial loans do not substantially differ from consumer or private loans. Sure, there are some departures, but most are similar. Although, the biggest contrasts are usually related to term, collateral, guarantee, and interest.

What’s more, not all banks or credit unions make commercial loans available. However, it’s worthwhile to check with regional operators and smaller, local institutions which might offer better arrangements. Here are the most common commercial loan types found, with variations:
  • ● Lines of credit. This is perhaps the most familiar. It’s a semi-permanent loan which provides capital for different situations. It could fund emergency expenses, bridge the gap when cash flow stalls, or for other reasons. These are a fairly low risk, so lenders don’t often charge expensive interest rates.
  • ● Installment loans. As the name states, these are debt instruments which borrowers pay back over a given period of time. (Usually in equal installment payments.) Borrowers receive the funds up front and then amortize the loan on a schedule. Because of the nature of installment loans, interest rates can be higher.
  • ● Balloon loans. Generally, these commercial loans go by other names. (The term “balloon” itself is a bit unnerving.) But, they are structured so the borrower only pays interest during the term and then the principal balance is due at once.
  • ● Interim loans. To the general public, these are similar to construction or take out loans. Meaning, funds are paid out in increments and then another debt instrument is used to pay off the money outlays. (It’s like building a new house. The lender makes payments to the builder. Then, the new homeowner obtains a mortgage to repay those funds.)
  • ● Secured loans. These debt instruments are obtained by promising collateral. While secured loans generally offer a lower interest rate than other commercial loans, the amount borrowed is typically less. In other words, the loan amount is based on a percentage of the value of the collateral. So, collateral worth $20,000 might secure a loan amount of $10K to $15k.
  • Of course, there are other types of loans. It’s best to compare rates and terms before committing to one.
Article courtesy of Proactive Lending Group. The Best Commercial Lender in San Antonio plus the state of Texas.

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