ContractsCounsel Logo
Home Types of Contracts Commercial Loan

Jump to Section

What Is a Commercial Loan?

A commercial loan is a money-lending relationship between a business and a financial institution. Businesses typically take out loans because they are growing at a rate where they require expansion of some type, which may include more equipment, office space, and even more robust operations. While businesses can also use their own profits, attract investors, or seek alternative financing options, a loan is a good way for a business to obtain the capital it needs to be able to hit their goals or benchmarks for growth. However, with the loan, business owners are better able to grow the business and generate the revenue they need to not only pay back the loan but to increase their capital, too.

How Commercial Loans Work

Most business owners apply for a commercial loan so they can get to the next stage in their business. This short-term funding helps with the operations of the company on either a large or small scale. Loans can be used for nearly anything from the purchase of a commercial building to funds needed to pay a surge of contract employees.

Once a business owner has identified that their company is in need of a loan to continue operations, they usually have to approach the financial institution with collateral. This collateral will end up becoming the bank's property if the business defaults on its loan or goes bankrupt. A business can also seek an unsecured loan without having to put up collateral, but this is less common.

When making a lending decision and signing a loan rate with terms, the financial institution may look at a number of factors, including:

  • Your company's finances: Similar to consumer loans, an institution issuing the loan will want to take a look at your company's finances, debt service coverage ratio (similar to the debt-to-income ratio for consumer loans), and credit profile to determine your company's creditworthiness and ability to repay the debt. The financial institution wants to see the company's balance sheets to showcase cash flow and any liabilities it currently has.
  • Your personal information: It's common for an individual to have a better credit history and credit score than their business, especially if the business is new. In this case, the bank may request information to assess your personal creditworthiness too.
  • The property you need a loan for, if applicable: If you're applying for a real estate or construction loan for your business, the financial institution may also want information about the property to determine things like appraised value.

Types of Commercial Loans

Here are a few of the many types of business loans:

  • Business line of credit: A business line of credit is similar to a credit card in that it's revolving, although a line of credit is typically used for larger amounts and has different repayment terms compared to a credit card. It's useful if you need a lump-sum of cash, want to choose when and how you use it, and want to avoid paying interest on any amount you don't end up using.
  • Business credit cards: This is a common loan that small businesses take on so they can track expenses, manage spending, and purchase items they may not be able to afford with cash. Just like consumer credit cards, interest rates vary depending on creditworthiness. Because of this, look for credit card offers that suit you well, like a 0% introductory APR or a card that gives rewards based on how much you use it.
  • Construction loans: Construction loans are specifically to build new property, renovate existing property, or make repairs. You can use the loan funds to pay a company to perform the work and to pay for the cost of materials.
  • Hard money loan: These loans usually have short loan terms of mere months up to two years. They are mostly issued by private investors or specialized financial institutions who charge a higher interest rate, but they can be useful for business owners who need money quickly and expect to pay off the loan quickly, too.
  • Blanket loan: If you have multiple properties, then a blanket loan may be a good option as long as you understand the downsides. While a blanket loan may be very convenient for you to manage funds, they usually involve hefty payments and strong penalties if you default on the loan.
  • Real estate loan: Real estate loans are for purchasing new business property. Loan terms typically range from five to 20 years, and it's not uncommon to have a balloon payment after a specific number of years of the term. You may also expect to pay higher interest rates and fees for items like an appraisal, survey, and loan origination documents. Many business owners who don't want to purchase property rent it instead. If you want to go this route, there are different types of commercial real estate leases to be aware of.
  • SBA loans: These loans are given by lenders and are guaranteed in part by the Small Business Administration. There are many small business loans available, but in general, the SBA requirements are that your business is a small for-profit entity that operates in the United States. These loans give your business a surge of capital to use on what you need.

Where to Get a Commercial Loan

While you may immediately think of a bank for where you should go to get a commercial loan for your business, there are other options. Here are some details about banks and other options for lenders:

  • Banks: Banks typically provide good rates and long-term options to keep payments reasonable for the business. However, they tend to be more selective and the process for acquiring a loan is longer.
  • Commercial lender: In addition to banks, there are also other commercial lenders that are able to issue loans. You can expect lower costs and faster approval compared to banks, but the interest rates are usually higher and the loans are short-term.
  • Hard-money lenders: Private companies usually dole out hard-money loans, which are short-term and require little time or documentation for approval. However, these lenders typically charge higher interest rates.
  • Crowdlending: Crowdlending happens on marketplaces where borrowers and lenders are matched according to need. There is less regulation on these platforms than there is in traditional lending methods, so engage at your own risk.

Advantages of a Commercial Loan

It's helpful to know the advantages of a commercial loan so you can make the right decision for your business. Advantages include:

  • Money right away: Even if the loan approval process is lengthy, you'll end up with funds more quickly than saving your revenue and waiting for your available funds to be what you need them to be.
  • Manageable payments: Even if you take out a large loan, you should have a manageable repayment amount every month.
  • Tax-deductible interest: Although you will be paying interest on your commercial loan, the interest you pay is tax-deductible, which can help you at the end of the year.
  • No need to bring on investors: You either started your business on your own or with a core group of people. You could bring on an investor who will supply the business with needed funds, but then you are probably also giving up a part of your ownership in the business in exchange. A commercial loan can give you the capital you need without compromising your percent of ownership in the company.

Commercial loans are a great way to get the cash you need to continue growing your business, which is a business owner's dream. Commercial loans are not something to shy away from; rather, they can provide the means to get the equipment, property, and people you require to make your business an even bigger success.


ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.


Need help with a Commercial Loan?

Create a free project posting
Clients Rate Lawyers 4.9 Stars
based on 11,053 reviews

Meet some of our Commercial Loan Lawyers

Jason H. on ContractsCounsel
View Jason
4.9 (15)
Member Since:
March 5, 2023

Jason H.

Managing Attorney
Free Consultation
Dallas, Texas
23 Yrs Experience
Licensed in TX, VA
Regent University, School of Law

Jason has been providing legal insight and business expertise since 2001. He is admitted to both the Virginia Bar and the Texas State Bar, and also proud of his membership to the Fellowship of Ministers and Churches. Having served many people, companies and organizations with legal and business needs, his peers and clients know him to be a high-performing and skilled attorney who genuinely cares about his clients. In addition to being a trusted legal advisor, he is a keen business advisor for executive leadership and senior leadership teams on corporate legal and regulatory matters. His personal mission is to take a genuine interest in his clients, and serve as a primary resource to them.

Jeremiah C. on ContractsCounsel
View Jeremiah
5.0 (46)
Member Since:
March 5, 2021

Jeremiah C.

Partner/Attorney at Law
Free Consultation
Houston
16 Yrs Experience
Licensed in NV, TX
Thomas Jefferson

Creative, results driven business & technology executive with 24 years of experience (15+ as a business/corporate lawyer). A problem solver with a passion for business, technology, and law. I bring a thorough understanding of the intersection of the law and business needs to any endeavor, having founded multiple startups myself with successful exits. I provide professional business and legal consulting. Throughout my career I've represented a number large corporations (including some of the top Fortune 500 companies) but the vast majority of my clients these days are startups and small businesses. Having represented hundreds of successful crowdfunded startups, I'm one of the most well known attorneys for startups seeking CF funds. I hold a Juris Doctor degree with a focus on Business/Corporate Law, a Master of Business Administration degree in Entrepreneurship, A Master of Education degree and dual Bachelor of Science degrees. I look forward to working with any parties that have a need for my skill sets.

Anand A. on ContractsCounsel
View Anand
5.0 (39)
Member Since:
July 17, 2022

Anand A.

Counsel
Free Consultation
Philadelphia, PA
10 Yrs Experience
Licensed in NJ, PA
Rutgers University School of Law

Anand is an entrepreneur and attorney with a wide-ranging background. In his legal capacity, Anand has represented parties in (i) commercial finance, (ii) corporate, and (iii) real estate matters throughout the country, including New Jersey, Pennsylvania, Delaware, Arizona, and Georgia. He is well-versed in business formation and management, reviewing and negotiating contracts, advising clients on financing strategy, and various other arenas in which individuals and businesses commonly find themselves. As an entrepreneur, Anand is involved in the hospitality industry and commercial real estate. His approach to the legal practice is to treat clients fairly and provide the highest quality representation possible. Anand received his law degree from Rutgers University School of Law in 2013 and his Bachelor of Business Administration from Pace University, Lubin School of Business in 2007.

Casey B. on ContractsCounsel
View Casey
5.0 (1)
Member Since:
October 16, 2023

Casey B.

Attorney
Free Consultation
Atlanta, Georgia
6 Yrs Experience
Licensed in GA
Mercer University, Walter F. George School of Law

I have a Juris Doctorate degree from Mercer Law School, and I am an active member of the Georgia State Bar Association. I have spent the last eight years reviewing, drafting, editing, and negotiating hundreds of contracts on a monthly basis, working in-house for a Fortune 500 company. I am a results-driven, self-motivated, experienced contracts attorney with exceptional drafting, research and communication abilities.

James D. F. on ContractsCounsel
View James D.
Member Since:
October 12, 2023

James D. F.

innovative Counsel [iC]℠
Free Consultation
Sydney, Australia
11 Yrs Experience
Licensed in CA
Queensland University of Technology

Unique Hybrid Background ➲ Deep Legal, Tech & Commercial Experience More by pure chance than design, I arrived late in life to pursue a career in law. My background spans more than 3 decades across Information Technology, entrepreneurship & the legal profession supporting my claim to being a 'Deep Generalist'. What is a 'Deep Generalist'? 'The professionals who develop into really great client advisors are deep generalists.' Quote from Warren Bennis. From 2013 I worked for established boutique property, finance & commercial law firms + an award-winning #newlaw firm of senior lawyers (formerly Nexus Law Group, now merged with Arch.law) before founding my digital law firm Blue Ocean Law Group in 2017. I also worked part-time for 2 years as a freelance online expert across all aspects of Australian Law with JustAnswer (H.Q. in San Francisco) and volunteered at the Caxton Legal Centre to give back to the community. Now I offer pro bono (free) legal assistance at my discretion. My achievements in the law are best reflected in the high number of settlements where civil litigation has been avoided, court judgements (incl. successful appeals) in my clients' favour & [90+] testimonials which can be seen on the blueocean.law [700+] page website which offers tons [585+] of both free & paid innovative legal products & resources. My personal experience as a client on the other side of legal matters affords me a unique perspective and goes some way to explaining my passion for the reinvention of the delivery of legal services. I am an early adopter of technology + gadgets, an avid reader and an animal lover. In January 2023, I joined the IAPP – International Association of Privacy Professionals and became a Certified Information Privacy Professional – United States by gaining the highly valued gold-standard ANSI-Accredited CIPP/US credential. I followed this up in August 2023, by obtaining the Certified in CyberSecurity qualification form ISC(2). Pre-Law Background From 1992 to 2002, I worked for Accenture as an IT Project Manager across APAC (including long-term project assignments in New Zealand & Singapore). I started a small business side hustle in 1997 and in 2003 I left Accenture to become a full-time entrepreneur in the transport industry. I later expanded into the mezzanine property development finance market as well as venturing into small-scale property development.Unique Hybrid Background

Kchris G. on ContractsCounsel
View Kchris
Member Since:
October 15, 2023

Kchris G.

Associate Attorney
Free Consultation
Norman, Oklahoma
4 Yrs Experience
Licensed in OK
Oklahoma City University School of Law

My name is Kchris Griffin. I am an licensed attorney practicing Family and Civil Law in Oklahoma. My goal is to help those in need with receiving efficient and effective legal services.

Drew M. on ContractsCounsel
View Drew
Member Since:
October 19, 2023

Drew M.

Attorney
Free Consultation
Florida
17 Yrs Experience
Licensed in FL, MA
University of Florida

Drew Melville is a Florida and Massachusetts-licensed attorney with fourteen years' experience in real estate transactions, title insurance and land use. His practice includes all aspects of commercial real estate acquisitions, dispositions, financing, joint venture formation, leasing and land use approvals. Mr. Melville is a title agent for Old Republic National Title Insurance Company, First American Title Insurance Company, and Stewart Title Guaranty Company. Mr. Melville's practice is national in scope, and he brings a creative and solution-oriented approach to his clients' diverse array of real estate investment and development activities in all real estate asset classes. These often include urban infill, adaptive reuse, affordable and workforce housing, historic preservation, sustainable building, brownfield or gray-field redevelopment and opportunity zones. Prior to starting his own firm, he was an in house counsel for the real estate development subsidiary of a large, diversified land and agribusiness company. To date, Mr. Melville has closed over $1.2 billion in commercial real estate transactions.

Find the best lawyer for your project

Browse Lawyers Now

Quick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.

View Trustpilot Review

Need help with a Commercial Loan?

Create a free project posting
Clients Rate Lawyers 4.9 Stars
based on 11,053 reviews
Financial lawyers by top cities
See All Financial Lawyers
Commercial Loan lawyers by city
See All Commercial Loan Lawyers

ContractsCounsel User

Recent Project:
Engineer
Location: Florida
Turnaround: Less than a week
Service: Drafting
Doc Type: Commercial Loan
Number of Bids: 2
Bid Range: $750 - $1,200

ContractsCounsel User

Recent Project:
Assumption of Food Trailer Loan
Location: Missouri
Turnaround: Less than a week
Service: Drafting
Doc Type: Commercial Loan
Number of Bids: 2
Bid Range: $995 - $1,250

Need help with a Commercial Loan?

Create a free project posting
Clients Rate Lawyers 4.9 Stars
based on 11,053 reviews

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call

Find lawyers and attorneys by city