Commercial Loans


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In today's world, everyone tries to be the best. Same is the case with businesses; but, at times, they don't have the funds for their ventures. Commercial loan is a bank loan granted for the use of a business.
As curious people, we all want answers to certain conventional (what, why, how) and certain unconventional (etc) questions.

What: - As mentioned earlier, commercial loan is a bank-given loan to a business organization. The borrower has to repay the sum within a period of time, usually accompanied by some interest. It may be for basic operation(s) like purchasing supplies (for production) or even for buying new machinery. Some organizations apply for renewable loans, which allow the business to secure necessary funds, repay the balance within a time frame with certain terms, and then renew the loan.
Why: - Suppose your milk man decides to launch mint flavored milk but, due to lack of funds he either thinks of buying lottery tickets and visiting temples everyday or doubling your supply even if you don’t need it or going to a bank and asking for a commercial loan. Of course the borrower (the milk man in this case) has to prove his credit worthiness by, for example showing a stable cash flow in his business.

How: - A step by step process to apply for a commercial loan is as follows:-
Know why and how much loan you would require:
Get your financial details like assets (cash, stock, inventories, property rights, and goodwill.) and liabilities (any obligation or debt) in order.
Fill the application form (available at the bank) for a commercial loan:

Relaying all the details to the loan officer and waiting for the bank to do a risk analysis.
At times, commercial loan brokers are employed by the borrower. A broker is a specialist intermediary between borrowers and lenders, acting on behalf of the borrower. A broker is employed if no prior relationship exists with a bank or the borrower is not sure about the interest rates for a particular loan.

Risk analysis based on quite a few factors like the FICO (Fair Isaac Corporation) score, which calculates the borrower’s creditworthiness based on credit report information, typically sourced from credit bureaus. Borrowers with a high FICO score qualify for the best rates available. The DSCR (Debt Service Coverage Ratio) ratio which tells the lender how much income you expect to receive after you have satisfied your debt service requirements. High DSCR results in more attractive loans.


 1) Commercial loan is qualified based on the amount of income the property produces unlike residential loan which is given against personal income of the borrower.
2) If the lender considers the proposition to be risky, he might grant the loan but by charging more to fund the money.
3) Commercial loans require at least 10% down payment.
4) Depending on the borrower’s organization and his needs, he may apply for different amounts. This will then be analyzed by the lender. There is a lower and an upper cut-off which varies from organization to organization after checking the past record for fraudulence.