A Short Primer on Commercial Lending Rates

2008-02-11 15:05:49

( Business )



Definition of Commercial Loan

A commercial loan is a type of loan that finances projects and activities that are of a commercial nature. For instance, you use a commercial loan to finance the construction of a building which you will either rent or sell, or for funding new machinery for use in your business. Commercial loans are also extended for working capital purposes, so that you will be able to operate with sufficient funds to cover daily expenses.

To apply for a commercial loan, you need to go to banks, small business lending institutions, or investment lenders. Each of these types of commercial lenders have their own policies for developing loan packages and approving your loan request.

Factors Determining Commercial Lending Rates

Commercial lending rates may also vary among different lenders, as well as depend on other factors.

Generally, the purpose of the commercial loan will determine what rates can be offered. There are different commercial lending rates for each business type, such as retailing, realty, research and development, etc.

Start-up businesses usually have to pay higher commercial lending rates because of their riskier nature.

The length of the loan period and whether it is based on fixed or adjustable mortgage rates will also determine its lending rate.

Loan-to-value ratios also affect the commercial lending rates. Higher LTV ratios generally spell lower lending rates.

And as with individual borrowers, your company's credit history will also determine the commercial lending rate. Companies with sub-prime financial or credit performance can expect higher lending rates.

Finding the Right Commercial Lending Rates

Many companies that engage in commercial lending publish their rates in newspapers and on their own websites.

You can try using the commercial lending rate calculators found in some of the sites. You just need to input the desired loan amount, time period, and purpose of the loan. The built-in calculator can automatically compute the lending rate as well as the type of mortgage package you may qualify for.


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