The fact is, there are most likely going to be times when your business needs cash to help with a situation. It could be that an opportunity has fallen into your lap and you want to take advantage, or you might just have a cash flow issue. Whatever the reason, you may need to borrow money from the bank to make your investment or to pay your bills. However, there are several options available to you, and you need to understand the difference between them. Here is a listing of the different types of commercial loans so you know what you are getting into.
Commercial Real Estate Loan
A real estate loan is meant to help you buy commercial property for your business. It is essentially a mortgage on purchasing space to conduct your business, or as an investment opportunity. There are many different types of commercial real estate loans, such as permanent loans, which are just like first-time home buyer mortgages. You can also get a blanket loan, which provides funding to buy several properties at once. Your needs will vary depending on what type of property and how many properties you are looking to buy, but there is no doubt a funding option that will work.
Financing For Equipment
Let’s face it, large equipment can be very expensive. Many businesses rely on equipment to do their work, and if you need to buy something new, it can very hard to have the cash available to do so. Instead of shutting down, you can get financing through an equipment loan. You can keep your business running using the vital equipment you need. You can often use the equipment you are going to purchase as collateral on the loan, which means there is a lower threshold for qualifying. If you eventually default, then the lender can take possession of the equipment that you have purchased.
Business Line of Credit
A line of credit is similar to a credit card. Instead of making purchases, you can get cash to purchase things. It differs from a loan in that you only pay interest on what you use. You do not get all of the money all at once. The bank will qualify you for a certain amount, and you will have that available to you to use as you need. Some lines of credit will allow you to reach the maximum and repay it to be able to use again, and others do not allow you to continue drawing if you reach the limit, regardless of whether you have repaid anything.
Commercial Business Loan
A standard commercial business loan is one in which the business is given a lump sum upon approval. There are usually no restrictions on how the funds can be used, so it is a good option if you have several different types of expenses you need to pay for. They are set up with a payment schedule, and usually must be paid back within five years. Defaulting on a loan will damage your credit, and the lender may be able to dip into your personal assets to make good on the debt. However, there are non-recourse commercial loans available that allow the lender to only target whatever collateral is put up for the loan. That way your personal assets are protected.
Bridge loans are most commonly issued for real estate purposes. They are for helping a business bridge a gap before they have long-term financing solutions in place. A bridge loan is for a short period, and has a high interest rate when compared to other types of loans. They give a business the cash flow they need to pay their bills while they purchase property. The repayment schedule is also very short.
Getting a mortgage for a property is one thing, but what about the funding to be able to build on that location? That’s where a commercial construction loan comes into play. These loans are specifically for the funds to cover the design and the construction of a building or structure on a piece of property. This is a perfect option if you have a piece of property that you want to develop and do not have the cash on hand to do so. Construction can be for anything, from a residential rental property, to office space, or a shopping center. These projects are expensive, but a construction loan can help make it happen.
Commercial Auto Loan
A commercial auto loan is much like a personal auto loan. It is funding to purchase a vehicle that you will use for your business operations. They tend to have higher interest rates than standard loans. In many cases, lenders will only finance new vehicles because of their fast depreciation. This is something you should always keep in mind.
As you can see, there are many options to help your business grow and take advantage of opportunities. Which one you use will depend on your specific situation and your financial status. The important thing is that you are strategic and make the choice that works best for you.