Commercial loans are bank loans that are granted to different types of business entities. In some cases, the loan is extended to assist a company with short term funding for basic operational functions, such as meeting payroll or purchasing supplies that are used in the production of the goods manufactured and sold by the company. At other times, it may be used to purchase new machinery that is directly connected to the operation of the business.
The commercial loan is often thought of in terms of a short-term source of cash for a business. Some bankers offer what is known as a renewable loan, which allows a business to the secure necessary funds, repay the balance within terms, and then roll the loan into a second or renewed period. This type of loan is often employed when a company needs funds to secure resources to handle large seasonal orders from customers while still providing goods to other clients.
As with most types of loans, the creditworthiness of the applicant will play a major role in the securing of a commercial loan. The business normally must present documentation that proves the stable cash flow of the company, ensuring the lender that the loan can be repaid according to its terms. If approved, the borrower can anticipate to pay a rate of interest that is in keeping with the prime lending rate.