Commercial loans: The types and high points
I was discussing a friend of mine who is aiming at achieving a lot of great feats in the business world, and one of the things he told me is that you can never achieve such feats without having a relationship with the loans that will propel your proper financing. This is the part of the discussion that underlined the fact that every business minded man must have proper information about commercial loans.
They are those loans that are given by the loan houses, mostly commercial banks to business entities and firms. These loans are given for the purposes of financing the activities of these firms. One aspect of the loan is that they are used as a short form of income to finance strategic areas that the firm is falling short of finances. While most firms will take on commercial loans for the purpose of funding basic operational expenses and functions, others might take out these loans for the purposes of meeting the payroll of the firm, while others might also take out these loans for the purposes of purchasing of raw materials for the production of goods and services.
One of the cardinal points to note when you desire to get a commercial loan of any type, from any type of financial institution is that the concept of credit worthiness plays a very great role. To prove the level of credit worthiness, every business that seeks such loan must present in verifiable terms the documented cash flow of the company in its stability. This is to insure that the loan can be repaid when given. Another thing that plays a very great role in this is that the loan givers might consider in serious terms the repayment circumstances that took place in previous loans that the firm took out, if there has been any.
However, before you get the commercial loan, it is also advised that you sit down with an advisory financial institution in your area. This will give you the chance to make a very good presentation of the working capital needs for which the loan will serve in your company and this will determine the type of loan that will be very suitable for you. Working with expert advisors will also insure that you become abreast with the local and financial regulations, as it concerns the banking industry in your area.
There are different types of commercial loans that are available in different areas, and you have to choose according to the needs of your company or business. The most prevalent commercial loans are bridge loans, real estate purchase loans, hard money loans, joint venture loans and then participating mortgage.
Bridge loan is the type of loan that is designed to give the borrower immediate money that will enable him or her to finance the immediate needs of a particular project. These loans are just used as a temporary source of funds, usually within one year. They are used to keep up with financial needs, while the permanent loans or sources of funding are expected. These types are given by private lenders, and will always require perfect proof of income, to avoid risks that are associated with not being able to repay.
Real estate purchase loan is a very traditional type of financing, and it is like the fixed rate loans. The property that this loan is financed with is normally the collateral for the loan, and the rates are determined by the loan-to-value ratio.
The next is the hard money loan, and it is also collateralized. Here, the property that is also financed is used as collateral. They are offered by private lenders and do not demand the same lending standards as other commercial loans. They have high risk of default, which results in high interest rates.
Joint venture loans: These types of commercial loans are used when the profits and losses that are due to the property will be shared by all that are involved. Here, individual firms that cannot access financing or loans alone pair to get these types of loans. But one condition that is very important is that the relationship between these firms might not exceed the financed property.
The last is the participating loans, and these set of loans allows the lender to share in the proceeds that are generated from the property. Here, it might not be on the total gains that the lender will share, but from a part of the proceeds. Every month, the loan giver receives the mortgage payment for the month, coupled with the interest, and then their share of the incomes that proceeds from property’s rental.