A commercial loan is a type of loan that is extended to businesses rather than individuals. It is a financial arrangement where a business borrows money from a financial institution, such as a bank or a credit union, to fund various business needs. Commercial loans are used for a variety of purposes, including starting or expanding a business, purchasing equipment, real estate, or inventory, and meeting other operational expenses.

Here are some key features and aspects of commercial loans:

Purpose: Commercial loans are typically used for business-related purposes rather than personal needs. Businesses may use the funds to invest in assets, cover operational costs, or expand their operations.

Types of Commercial Loans:

Term Loans: These are standard loans with a fixed repayment term. The borrower receives a lump sum amount and repays it over a specified period, typically with interest.

Lines of Credit: Businesses can be approved for a certain credit limit, and they can draw on this line of credit as needed. Interest is usually paid only on the amount borrowed.

Commercial Real Estate Loans: Specifically designed for purchasing or refinancing commercial properties.

Interest Rates: Commercial loan interest rates can be fixed or variable. Fixed rates remain constant throughout the loan term, while variable rates may change based on market conditions.

Collateral: Lenders often require collateral to secure the loan. This could include business assets, real estate, or other valuable property that the lender can claim if the borrower fails to repay the loan.

Repayment Terms: The repayment terms vary and can range from short-term loans (usually less than a year) to long-term loans with repayment periods of several years.

Creditworthiness: Lenders assess the creditworthiness of the business and may consider the business's credit history, financial statements, cash flow, and the business owner's personal credit history.

Documentation: Businesses are usually required to provide detailed documentation, including a business plan, financial statements, tax returns, and other relevant information when applying for a commercial loan.

Government-backed Loans: In some cases, businesses may qualify for government-backed loans through programs like the Small Business Administration (SBA) in the United States.

It's important for businesses to carefully evaluate their financial needs, terms of the loan, and the overall cost of borrowing before taking out a commercial loan. Additionally, seeking professional advice from financial advisors or accountants can be beneficial in the decision-making process.