What You Need to Know About Commercial Loans for Business

November 3, 2021

What You Need to Know About Commercial Loans for Business
Business resources

Whether your small business just opened its doors or has been around for years, securing the right commercial financing can be transformative.  

The Federal Reserve reports that commercial loans shot up nearly 30% in 2020 as more business owners sought commercial lending for their startups, local shops, and more.  

But did they get what they really needed?

With small business loans, SBA loans, and so many financing options available today, it can be difficult sometimes to decide which path to choose.  

The good news? We’ve put together this primer on commercial loans to help you make an informed choice about what type of financing is best for your small business.

What Is a Commercial Loan for Business?

The simplest definition is that it's a loan made to a business, not an individual, often to finance major expenditures or operational costs such as real estate, payroll operations or the purchase of production/manufacturing supplies.

You'll see the term "commercial loan" applied to a variety of financing agreements, but regulatory reporting conventions identify a small business loan as a standard commercial loan of up to $1 million.  

For larger purchases a commercial loan is often preferable and typically describes loans made to medium or large companies with revenue between $10 million and $1 billion per year.

What's the Difference Between Business Loan Types?

The tradeoff for securing a commercial loan of $1 million or more for business funding is that it's tougher to qualify and usually requires a higher business credit score. As part of the deal, your financial institution or commercial lender may require some type of asset, such as property or equipment, as collateral.

In contrast to commercial loans, small business loans typically out at around $100,000. We've found that small business owners seeking business financing often need a little more than that, which is why our term loans allow you to borrow up to $250,000.

The Bottom Line

Whether you need a short-term loan or an extended financing agreement, small businesses should explore all available options, from a local bank to an alternative lender. The right loan can make all the difference.

Learn how Safe-Way Moving used a commercial business loan from Idea Financial to scale into one of the most reliable moving companies in the country.