A beginner’s guide to commercial loans

A commercial loan is a financial agreement where a business seeks funding to cover specific operational or investment needs. These loans support developments like business expansion, equipment purchases or day-to-day expenses.
According to Money, “gross lending for UK businesses is expected to hit £496 billion in 2023”. Commercial loans are often tailored to the unique financial requirements of a business and will take into account factors such as business plans and financial statements.

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Types of Loans

A loan agreement can be classed as long or short term. A long-term loan agreement is commonly used for substantial investments such as property or extensive business equipment.

Commercial mortgages fall under the umbrella of long-term commercial loans. Lasting anywhere from 3 to 40 years, these loans can assist businesses in acquiring or refinancing properties to support their operational needs. The property itself often serves as collateral for the loan, mitigating the risk for lenders and potentially leading to more favourable terms for borrowers.

A short-term loan agreement provides quick capital for immediate needs, such as managing cash flow or addressing unforeseen expenses.

Commercial bridge loans are often used as short-term solutions to bridge financial gaps. These loans are particularly useful when a business needs quick financing before securing a more permanent, long-term solution. Commercial bridge loans have a higher risk, with higher interest rates due to their nature.

Who can apply?

Businesses are eligible to apply for commercial loans, with lenders assessing the creditworthiness of the business. Financial stability will be considered, alongside the purpose of the loan when considering applications. More information can be found here: www.parachutelaw.co.uk/loan-agreement.

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To apply for a commercial loan, businesses need to submit a comprehensive loan application, with financial statements, business plans and details about the intended use of funds.