A commercial loan is money that a business borrows from a bank, credit union, or other lender to cover business-related expenses rather than personal needs.
Here’s the breakdown:
- Purpose: Used to finance business activities such as buying real estate, purchasing equipment, funding construction, expanding operations, or covering working capital (day-to-day expenses).
- Borrower: Typically a business entity (LLC, corporation, partnership), though sometimes individual investors also take them out for commercial property.
- Lenders: Banks, credit unions, private lenders, insurance companies, and sometimes government-backed programs (like SBA loans in the U.S.).
- Collateral: Often secured by business assets, real estate, or equipment. Some loans are unsecured but usually carry higher interest rates.
- Terms: Interest rates can be fixed or variable. Repayment schedules might be short-term (a few months to a few years) or long-term (10–30 years for commercial mortgages).
👉 Example:
A developer wants to build a hotel. They take out a commercial real estate loan from a bank, secured by the property itself, to cover construction costs. The income from the hotel later helps repay the loan.
Related
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