Commercial and Industrial Loans
Commercial and industrial loans, as its name suggests, are loans that have been secured for business purposes. C&I loans are sometimes also referred to as “commercial loans.” Moreover, most of the loans included in C&I do not cater to individual purposes.
That is not to say that all business loans are also commercial and industrial loans. Such example includes the ones issued for real estate as well as loans that have been secured to financial institutions. The same goes for farmers or for anything that includes agricultural production.
These types of loans as well are only a short-term sector of credit and term loan. They may also include an interest rate supporting either the LIBOR rate (London Inter-bank Offered Rate) or prime rate.
LIBOR Rate and Prime Rate
The London Inter-bank Offered Rate, or LIBOR rate, refers to the average interbank interest rate through which the leading banks in London will prepare the estimates they can lend to one another. LIBOR comes in five (5) currencies as well as seven (7) maturities or borrowing periods.
The borrowing periods under the LIBOR rate include overnight to one year. Prime Rate (also referred to as prime interest rate or prime lending rate) on the other hand applies to the interest rate commercial banks use upon charging their clients with the highest credit rating, usually big corporations.
Purpose of Commercial and Industrial Loans
Business loans, or commercial and industrial loans, are an important source of financing for a business. Moreover, it refers to a significant sector of business through which various banking firms attain credit for the variated purposes in the business industry such as investments in equipment and inventory financing.
After all, its objective is to provide for capital expenditures to its client. Expansion is a must throughout the business sector. With this, business loans are a way to provide for the expansion or evolution of your business. However, commercial and industrial loans aren’t the only choice for financing your business, but they are easier to access among other alternatives.
Major business corporations have the access to equity financing simply through sourcing out from new investors or issuing bonds. But smaller businesses do not have the means to do that. This is why most clients of commercial and industrial loans are smaller or medium-scale business corporations.
These smaller businesses, most of the time, cannot produce a sufficient and adequate cash flow to consistently support themselves or finance their operations. They simply lack the means to the bond or equity markets which bigger business corporations have no difficulty accessing.
Smaller and medium-sized businesses may use these loans at any point of their time as long as they need the quick route for generating cash to finance their capital, mergers, acquisitions, etc. Because of this, C&I loans are sought.
These loans can also finance small and medium-scale businesses to help them afford capital property such as the likes of equipment and machinery. They may also use the loan to furnish new facilities, premises as well as to buy inventory or set up a production line.
Commercial and industrial loans may also be used for a joint partnership with either a competitor for a joint venture or a supplier to generate a new product. Not to be confused with consumer loans and real estate loans, banks further divide loan categories in their financial statements.
Advantages and Disadvantages of C&I
An advantage to this is that C&I loans help businesses circumvent or expedite the long and hefty process of garnering equity investors. The process of garnering equity investors is certainly pricier and consumes more time. It also creates accountability and responsibility entirely dependent on your business to those investors.
Commercial and industrial loans can create the means for a faster process of raising funds necessary for expansion.
The disadvantage to this, however, includes the period of paying off the loan – typically within one to two years. The debt service, or also called interest, can be costly. The cash with which you can recompense the loan can be subtracted from the working capital of the business.
Getting a C&I Loan
To get a C&I loan, there a few things you may need to take note of. The requirements upon obtaining a business loan depend on your situation, however, some of these things may include:
The collateral or the assets that you can share to secure for your C&I loan. Especially because loans that have been secured with collateral or assets have lower interest rates and are usually more convenient.
Loans that have not been secured are more difficult for new businesses to obtain. Collateral can be sold to compensate at least a portion of the amount they have loaned such a case that their client does not pay or yield to bankruptcy. However, the amount of assets or collateral also depends on the amount loaned.
Examples of potential collateral or assets you can use our inventory and accounts receivable (or the money your clients owe you) as well as equipment or vehicles.
Personal Guarantees can also be used in such a case if you do not have any assets or collateral to offer. Some lenders take a personal guarantee in place of it. This guarantee is simply a personal agreement you sign between you and your lender.
It is a promise to pay for the loan personally if your business cannot afford to pay. This is usually acted over by an executive or business partner to create trust between you and a potential lender. You can also co-sign the C&I loan with someone if you cannot gamble on the other choices.
Commercial and industrial loans are not the only option to obtain credit as earlier mentioned. Some of the alternatives include
- Commercial real estate (CRE) loans.
These are equal to a mortgage loan and used to afford a business real estate. Moreover, these are long-term loans as opposed to C&I loans.
- Credit Line.
This refers to the method of depositing cash into your bank account and only paying the interest upon the amount you have withdrawn.
This refers to simply get the finance through the use of accounts receivable as collateral.
So, if you ever find yourself in need of a commercial and industrial loan here in the state of Florida, don’t ever hesitate to contact us here at Florida Commercial Real Estate Loan Group for it!
We’re ready and we can help you with whatever funding and financing you need! Contact us by giving us a dial or by sending us an email! Work with the best, work with us here at Florida Commercial Real Estate Loan Group!
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