Five types of commercial loan

Commercial loans, which are used for business needs, are usually more complex in their terms and conditions than personal loans. There are many different types of commercial loans, including lines of credit, term loans, and commercial mortgages. These loans are often secured against tangible assets and collateral.

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What is a commercial loan?

A commercial loan is a financial agreement designed to facilitate the funding needs of businesses for various purposes. Unlike personal loans, commercial loans cater specifically to the financial requirements of businesses, offering tailored solutions to support their operation and growth.

Understanding commercial loans

Lenders will consider the financial stability of the business, taking an in-depth look at the credit history, the business’s stability, and the purpose of the loan. Companies such as can act for the lender or the borrower.

Small business lending was estimated to be £65.1bn in 2022. With many different loan agreements available, let’s take a look at five of the most common:

Capital leases

This form of financing, sometimes referred to as finance leases, enables businesses to acquire assets, such as machinery and equipment, without the need for an upfront purchase. The lessee gains ownership at the end of the lease.

Commercial mortgages

These loans are used to finance property and are secured against the property itself, with longer repayment terms than other commercial loans.

Acquisition loans

This type of loan agreement is used when capital is required to buy another business, assisting in mergers and acquisitions.

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Lines of credit

This short-term loan provides businesses with a flexible predetermined amount of credit, allowing them to withdraw funds as needed.

Term loans

Term loans, usually long-term in nature, involve borrowing a lump sum amount that is repaid over a specified period with a fixed interest rate.