Types of Loans at a Glance
Commercial Loans (long-term)
Usually larger amounts used for purchase of real estate or major capital expenses, paid back over a long period of time from 5- 10 years. Loan amounts are generally above $1 million.
Traditional Term Loans (medium term)
These are the most common types of loans for small businesses. They can be general purpose and paid back from 1- 5 years. Loan Amounts vary from $25,000 to $5 million.
Short-term Loans (3-18 months)
These are usually cash-advance type loans designed to cover short-term expenses or provide additional capital during seasonal revenue lulls. Loan amounts range from as low as $5,000 to $250,000.
SBA Loans offer a long-term, low interest rate loan program that is partially guaranteed by the Small Business Administration and issued through participating SBA lenders, most commonly a traditional bank. SBA loans are almost always in the form of traditional term loans in that they are issued as lump-sum disbursements to the borrower.
Equipment loans are a type of business financing designed specifically for the acquisition of new business equipment using the new equipment as collateral.
In practice, many large banks in the U.S. commonly associate a commercial loan with the purchase, improvement or refinance of commercial real estate.
While the expression commercial loans are used generically, it is important for business owners to understand that there are many choices when it comes to business financing. Not only are business loans created differently, there are now many more sources to acquire a commercial loan. Loans are created differently to service the varied needs of a business. For example, short-term loans versus long-term loans, secured versus unsecured, and line of credit versus lump-sum borrowing are differing loan programs. In this section we will review the most popular options for commercial loans, how they work and how to get them.