Credit · July 17, 2020

Four Types of Commercial Loans That Can Help You Grow Your Business

An influx of cash might be exactly what your growing business needs to reach the next level of success. The question is, which type of commercial financing is the best solution for your specific needs?

Knowing the different types of commercial loans can help you facilitate a more productive conversation with a lending specialist when you're ready to seek financing.


Lines of credit

Business lines of credit are one of the most flexible funding sources out there. You can apply for a line of credit well in advance of any financial needs, and it may provide a quick fix for cash flow gaps or working capital needs.

Generally, you only pay interest on the amount you draw with a line of credit. Many lenders even offer interest-only payments to help ease cash flow crunches. Typically, once you pay back what you've borrowed, your full credit line is once again available for use. You may not even have to reapply.

Term loans

When your financial needs are more significant, a term loan might be an ideal fit. These types of commercial loans usually offer higher amounts than a line of credit, as well as flexible terms and competitive interest rates.

Term loans may be secured against other collateral that you own, such as real estate or equipment. Unsecured terms loans are also available, although you might find lower interest rates with a secured loan, which banks tend to see as less risky.

Interest rates on terms loans may be fixed or variable. Depending on your situation, fixed monthly payments could make it easier to factor the loan into your business's budget. Meanwhile, a variable loans typically start with a lower rate but will change over time, depending on how prevailing interest rates shift.

Your business might use term loans to address debt restructuring, building improvements, working capital, equipment purchases or even funding a staffing expansion.

Business real estate financing

Whether you're ready to purchase your own space or refinance the one you have, these types of commercial loans will help you satisfy your business's real estate needs.

Business real estate financing generally includes flexible terms and loan amounts. Lenders may offer fixed or variable interest rates. Because real estate is often among a business's highest costs, repayment terms for these loans tend to be longer than others, generally between 5 and 20 years.

Equipment financing and leasing

Specialty financing like equipment loans and leases can help your business finance high-cost items, such as machinery you need to manufacture your products or vehicles you need to deliver them to customers. These types of commercial loans and leases are available with varying term lengths depending on your business's needs. They may also help you realize certain tax advantages over the life of the lease or loan.

For businesses with heavy equipment and vehicle needs like trucks, tractors, trailers and construction equipment, these loans may help finance 100% of the purchase price.

Many lenders also offer financing and lease options for both new and used equipment. This allows you to grow while finding solutions that keep your cash flowing.

Now that you're up to speed on the types of commercial loans available to businesses like yours, what will your next step be? Whether you have a specific goal in mind or want to discuss scenarios, forming a relationship with a business banker—or connecting with your existing one—can help you understand which types of loans fit your needs.

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This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.