What are the different types of loans businesses typically utilize, and how are they used?
Most common types of conventional commercial loans are asset-based lines of credit, commercial real estate loans [investment and owner-occupied] and equipment loans. Lines of credit are used to finance short-term working capital needs, such as the acquisition of inventory/raw materials and financing of accounts receivable. It is very important that they revolve properly. Banks want to make sure that the borrower is using the funds to acquire assets that will be quickly converted to cash and that the cash is then used to repay a portion of the credit line. This is heavily weighed when it comes time for renewal of the line of credit, which is usually on an annual basis. For investment commercial property, the primary source of repayment is usually the rental income from the property. For owner-occupied properties, the primary source of repayment is the cash flow from the business. Equipment loans are usually for a short term and are structured in accordance with the useful life of the eq
