Commercial Loans

Common uses for a commercial business loan include purchase of land or property, working capital, machinery and equipment, rolling stock, inventory, leveraged buyouts and much more. What separates a commercial loan from other types of major loans is that the money granted from this type of loan is specifically used to finance a company’s working capital requirements or purchase a commercial property. A commercial loan will have many similar features to other major loans, but the financial product is very different.
 
One large difference between a commercial loan and a common or residential loan is that a commercial loan is written and qualified based on the net operating income of a business or amount of income a property produces, where a residential loan is written and qualified based on the personal income of the borrowers.
 
Commercial loans do take the borrower’s personal income information and strength into consideration, but the amount of the loan directly relates to the amount of income the business or property produces. Lenders may use many different ratios and criteria to underwrite each application, but generally, the amount of income the business or property produces will determine the amount of money a commercial lender is willing to lend.
 
Business owners have other loan options especially through various government loan programs like the SBA, (Small Business Administration), FSA, (Farm Service Agency), and USDA Rural Development. Lenders consider business owners a lower risk if you occupy the building yourself, because as the borrower you have a higher stake in keeping the property and meeting your loan obligations. Most lenders will lend at a higher loan-to-value ratio if the property is your business.