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What Is a Permanent Loan?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 13 October 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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Also known as permanent financing, a permanent loan is a type of long-term loan that has terms in excess of a decade. Companies will often make use of this type of loan arrangement to manage the cost of acquiring production machinery, real estate and other purchases that will take a number of years to settle. In many cases, a permanent loan is used to purchase property that can then be developed with the construction of a retail location or a manufacturing plant.

One of the benefits of the permanent loan is that this financing option makes it possible to stretch the repayment process over a number of years. This provides the business with ample time to begin generating some type of returns from the acquired asset that can be used to pay the ongoing debt all the way through to full settlement. Depending on the exact provisions found within the provisions of the loan contract, the debtor may even be able to defer payments for a period of time, until the facility is finished and is capable of generating revenue. Throughout the life of the loan, the company may be able to enjoy a certain amount of tax breaks over the course of the loan, a benefit that makes the arrangement even more attractive.

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Thanks to the terms available with a permanent loan, a business can purchase an undeveloped lot of real estate and then build a plant or other type of business facility on that land. Once the construction is complete and the facility is operational, it will slowly begin to generate funds that help to settle the balance of the loan. For example, if the commercial property is developed by building a warehouse that in turn offers storage space to other businesses in the area, a portion of the collected revenue generated by the warehouse can be used to make the installment payments on the loan.

Considered a viable long-term debt or equity financing strategy, the permanent loan makes it possible for companies to become established in a specific location, set up an operation, and use the resulting revenue stream to cover the costs of the loan. Depending on the credit rating of the business, the interest on these types of loans is competitive with other financing options, making the permanent loan worthy of consideration by businesses of just about any size and description. A permanent loan can be obtained from a commercial bank as well as venture capital groups and a number of other types of financial institutions.

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