Commercial Loans

Commercial loans are widely available at competitive interest rates and repayment terms from the lending market leaders. These can be used to start or expand and develop your business or for the purchasing of equipment. Commercial loans can be the most flexible solution to meet your financial needs but it's also important to consider the effect of loan repayments on your cash flow and business assets.

When looking at commercial loans you will have to assess your requirements for repayment terms and compare interest rates, referred as the Annual Percentage Rate or APR, of different lenders in an attempt to choose the loan which is best for you.  The repayment term can vary between one and fifteen years approximately and you have two choices with regard to interest rates: fixed interest rates and variable interest rates. 

Fixed rate: With a fixed rate, the interest rate is set at the beginning of the term of a loan, the percentage given to you is determined by your situation, the amount of the loan, the term and your assessed capacity to repay the loan by the due date.  Your monthly repayment amount will stay constant, despite the changes in the bank base rate will be an advantage if the rate increases but a disadvantage if it drops. 

Variable Rate: The interest rate you pay is linked to fluctuations in the bank base rate and could as a result increase or decrease dependent on what is happening in the open market.  You will constantly pay the current market rate plus an agreed premium but since the base rate could change, your monthly repayments could go up or down.  If the interest rates fall you will pay less but you might end up paying much more if rates increase. 

There are several reasons why a commercial loan can be an advantageous way of increasing the money you need.  The first is cash flow.  Because your loan payments are agreed and set for the term of the loan your cash management could be more predictable from month to month.  Secondly, you have great flexibility on how you use the loan, which include paying in full other higher interest loans.  Commercial loans also can enable you to retain ownership in your company by making it unnecessary for you to raise funds by selling an interest in your company to an outside investor.  Interest payments on commercial loans are also tax deductible and are made with pre-tax money.  Another benefit of commercial loans is that if you back your loan using capital equipment then you remain the legal owner of the equipment.  You must be aware however that if you do not pay back the loan and default on repayments then the lender can foreclose on any assets backing the loan and sell them to pay back the money owing. 

Comparing the APRs of commercial loans is a good sign of how competitive loans are but it is also essential to pay close attention to the small print on the loan agreement.  If you think you may be in a position to pay back the loan before the due date then it would be a good idea for you to check the early redemption policy of the lender.  Some lending companies charge up to two months interest if you settle the loan within 3 to 5 years and before the due date, which can increase the total cost of the loan.  It might end up being cheaper to take a loan with a little higher APR but with no redemption penalty.