Types of Commercial Loans
Lenders break down commercial loans into different categories, depending on the goal of the loan and how it will be repaid. Some of the more common options on the market today include:
Term loans — These are your standard loans with fixed monthly payments. When you apply, you pick how much money your business needs and how long you’d like to repay the commercial loan. This could be anywhere from two years to 25 years or longer. The lender will set an interest rate for your loan and then set your total monthly payments, which will be a combination of interest and paying down your balance.
Short-term loans — Short-term business loans are for smaller amounts of money that you typically pay back within 18 months or less. In exchange, these loans have a simpler, faster approval process than a term commercial loan. Some even have one-day approval. Short-term loans are useful for restocking inventory, meeting payroll, handling an emergency repair, and a variety of other daily operating costs.
Equipment loans — You can use these loans to buy an expensive piece of equipment or other assets for your business. With equipment loans, you may be able to secure the loan just using the asset itself so your business will not need to put up any other forms of collateral.
Commercial real estate loans — These loans will help your business buy a new piece of property, like a new or second office, warehouse or manufacturing facility. Commercial real estate loans are for the largest amounts of money and have the longest length. They are also secured by the property your business is buying.
Line of credit — With a commercial line of credit, the lender approves your business for a maximum borrowing amount, like $100,000. You then can borrow up to this amount whenever you want. After you repay the funds, you can borrow again. It’s not a one-time loan but rather an option to borrow at your convenience.
SBA commercial loans — SBA commercial loans are part of a government program run by the Small Business Administration. They offer similar commercial loan options, like term, real estate and lines of credit. The SBA doesn’t lend money itself but instead partially guarantees repayment of a business loan. You get a loan from a bank or private lender, and if your business doesn’t pay everything back, the SBA covers some of the loss.
Even though the SBA has small business in their name, their loan programs are extensive enough that they can be useful for medium-sized businesses looking for commercial loans. For example, their 7(a) fixed term loans go up to $5 million. However, when you apply for an SBA loan, you will pay some additional fees to the government. This is how they finance their guarantee. In exchange, you may be able to qualify through the SBA loan program even if your business would be rejected for a regular commercial loan.