The Operation of a Commercial Loan

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Business people borrow money mainly for many reasons, but normally the common reasons are money as working capital, money to expand an existing business or money as a leverage equity in a commercial real estate venture.  One must have a different expectations when applying for a commercial loan in comparison to applying for a home mortgage loan.  How the lender provides his/her loan terms is a variable operation, but some lenders will go a level higher as to require an evaluation of the applicant’s company worth, including the commercial properties owned, as these are required collateral for a bigger amount of commercial loan; however, in general, most lenders charge high interest rate in commercial loan applications than a home mortgage loan.

A commercial loan applicant must conduct sufficient research to weigh carefully all options of the terms required in the loan, most especially the repayment procedure, since all banks require commercial loan borrowers to pay their loan much earlier than the computed due date for the simple reason that banks set up a repayment term known as balloon repayment, which entails for a borrower, who for example borrows a huge amount of money for a long-term payment, like 30 years, to pay the computed principal amount and its interest in a span of 10 years and pay, afterwards, the entire loan balance in one balloon repayment.  For more facts about loans, visit this website at http://money.cnn.com/2014/07/17/smallbusiness/alternative-financing/.

Following this form of payment arrangement, borrowers, who find it difficult to meet up this requirement, may be compelled to take the option of applying for a re-qualification of their loan or re-financing their loan at the end of the balloon term. The borrower has also to consider the risk factors before entering into this form of requirement, such as: experiencing a cash-flow problem in the years immediately preceding the balloon term, to which the lender may require a higher interest rate; the possibility of the borrower not to be granted for another loan; the borrower’s properties may be foreclosed for non-payment of the balloon repayment amount.  A borrower might like to consider weighing down the commercial loan terms of non-bank lenders, who can be less stringent in their loan requirements and can offer long-term commercial loans without requiring for a balloon repayment, but their interest rates are way up higher than the bank’s rate, check it out!

After knowing the aspects of repayment of the loan, the next important step of a borrower is to determine how much can he/she apply for a loan with respect to the bank’s terms and that of his/her financial needs.  Once the borrower is able to get a full grasp of the terms, he/she has to consider the following: how much cash will the bank likely to grant and how much money should the borrower make available to repay the structured loan. Other bank loan requirements must be incorporated into a borrower’s evaluation process, and these requirements are: banks will require a down payment of 20-25% based on the amount of loan being applied; loan terms vary depending on the loan amount being applied, as well as the classification of the kind of business of the applicant; bank loans prohibit second mortgages, click here for more info!

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