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What is commercial lending?

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27th Nov 2009 by Ellen Silverman

Commercial lending is the process of loaning money to established entities such as a business, partnership, or limited liability corporation. In some cases, commercial lending will take the form of a revolving line of credit that the business can utilize to handle operational costs and other types of working capital needs. At other times, commercial lending will involve the extension of bank loans with a fixed or variable rate of interest and a set of terms, including duration.

When institutions offer commercial loans, the focus is often on the cash flow of the company first, and the assets that could be used as collateral second. This is helpful for a company that is able to demonstrate a consistent flow of cash over an extended period, but has little in the way of physical assets such as property. If the lender evaluates the cash flow and determines that the applicant can demonstrate a reasonable ability to repay the loan according to terms, then the bank loan will likely be granted.

Commercial lending institutions also tend to offer a benefit to businesses that is not found with asset-based loans. In general, the interest rate for commercial lending is lower than other types of loans or revolving business credit arrangements. This will mean that the company will pay less for the privilege of receiving financial assistance from a commercial lender.

However, most commercial lending institutions have high standards when it comes to the stability of the company, particularly the cash flow. For this reason, a company may find it more difficult to obtain commercial lending in some cases. In addition, an unanticipated change in the cash flow can affect the structure of the revolving line of credit, if the lender determines that the customer can no longer manage the amount of commercial credit extended. In the U.S. a commercial lender offers loans backed by hard collateral. In most cases this is real estate, but it can also include factoring, non-conforming assets, or other sources of collateral.


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8th Nov 2009 by Amelia Timbers

Commercial lending refers to the loans banks make to businesses. Most businesses- small and large cap- use a lot of debt every year to make ends meet. Few businesses operate without taking out loans, which is why there was such panic during 2008 when large banks stopped lending- most businesses need loans to make it through every year. Commercial lending is so popular because for many products, there are seasons of buying and seasons of production. As a result, cashflow is much higher in certain times of the year than in others. For example, a ski company may have the most sales in fall, when people gear up for ski season, or after the holidays, when people have given ski apparel for gifts. They may contact a commercial lender for a loan to tide them over during the summer, when no one buys ski gear, and pay off the loan in the fall when their cash flow increases again.

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3rd Nov 2009 In Finance 2 Answers | 2097 Views
Subjects: commercial lending, lending,

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