What Are the Different Types of Commercial Bank Loans?

Alex Newth

Commercial bank loans are those loans made by banks to established businesses and industries, as well as those businesses that are just getting started. Among the many types of commercial bank loans are start-up loans, which give new businesses enough money for costs such as buying property and equipment and hiring necessary staff. Equipment loans are made to purchase expensive equipment, with the equipment serving as collateral in case the business default on the loan. Demand loans are paid to debtors, whether private citizens or businesses, in one payment and paid back in installments. Term loans are paid in installments, sometimes every week or once a month, and they last several years.

Start-up bank loans will help new businesses pay for costs such as property equipment.
Start-up bank loans will help new businesses pay for costs such as property equipment.

Starting a business requires money. A soon-to-be business owner usually needs to purchase equipment, business space, inventory and supplies. While some people may have funds available, many do not, which leads them to seek start-up commercial bank loans. The business often serves as collateral if the business owner defaults, and the bank may require the business owner to have cost estimates so the bank loans the proper amount of money.

Equipment loans help business pay for expensive equipment.
Equipment loans help business pay for expensive equipment.

Expensive equipment may be necessary for a business, but it can be hard to pay for. With this in mind, equipment commercial bank loans typically pay for expensive pieces of equipment, such as construction equipment. While a bank may give out loans for inexpensive equipment, such as a computer, this is uncommon because the bank will typically not gain much on the loan. The equipment serves as collateral with this type of loan, however, and it may be confiscated if the person defaults on the loan payment.

Demand commercial bank loans are among the most common loans. These can be used for many purposes, including buying items and just to have extra money on hand, and the money is paid to the debtor in full in one payment. After the debtor receives the money, he or she is put on a payment plan and must repay the money in installments. If the debtor defaults, then he or she typically is expected to pay back the full amount of the loan immediately.

A business may take out a term commercial bank loan, which is paid to the debtor in installments, usually every month. These loans typically last three years or longer and are usually used by businesses to finance operations. During this time, the bank will initiate a monthly repayment schedule. Since the monthly repayments are less each month than the amount of money the debtor is receiving, it typically takes several years after the loan is complete for the debtor to completely repay the debt.

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