A commercial loan is a special type of loan provided to businesses by a financial entity. Businesses typically use this loan to buy long-term assets or assist in the day-to-day functional costs.
All You Need to Know About Commercial Loan
It is impractical for small and medium-sized businesses to approach the bond and equity market for financing due to numerous legal obstacles, additional costs, and the duration required to acquire the funds.
Hence, many small and medium-size companies consider commercial loans for their operational costs.
In essence, enterprises can use this loan for any purpose. These include purchasing stock, or assets, paying wages, routine costs, etc.
However, when applying for the loan, the business must explicitly state the commercial loan’s use.
Advantages of Commercial Loan
1. Stress-free Application Process
While the application process for commercial loans and any loan may seem lengthy and tedious, raising money in the debt market is relatively easier. There exist a few obstacles, time, and costs in the process, but the results are worth it.
2. Accessible Capital
This loan provides small businesses with easy access to cash on hand. Companies can use this cash to purchase equipment or process payrolls, etc.
3. Preserving Ownership
Acquiring a commercial loan does not dilute your ownership rights. This type of loan, however, enables the owner to raise money without compromising their stake.
Disadvantages of Commercial Loan
1. Daunting Paperwork
The application process for a commercial loan is tedious, daunting, and extensive. From business plans to outlines and presentations, the process requires preparation and dedication.
2. Interest Cost
Like it or not, commercial loans come with an interest cost that may be fixed or floating. Therefore, like all typical loans, businesses are required to pay back monthly installments.
3. Funds Rigidity
When applying for the loan, the business needs to specify the reason for acquiring. This prevents the business from spending money on anything other than what is mentioned in the application.
Top 10 Business Loan Application Mistakes
You are applying for a business loan to access funds to grow your business. It is not a decision that you made lightly. To find out the 10 common business loan application mistakes that you can avoid keep reading.