Our lending market leaders offer business loans with competitive interest rates and terms for paying them back. These can be used to start a business, grow and improve an existing one, or buy equipment. Commercial loans might be the most flexible way to get the money you need, but you should also think about how loan payments will affect your cash flow and business assets.
When looking at commercial loans, you should think about how you want to pay them back and compare the Annual Percentage Rates (APR) of different lenders to figure out which loan is best for you. On average, the length of time you have to pay back the loan is between one and fifteen years, and you can choose between fixed and variable interest rates.
Fixed Rate: The interest rate is set at the beginning of the loan's term. The percentage you are given is based on your situation, the amount of the loan, the term, and how well you are thought to be able to pay back the loan by the due date. Your monthly payment amount stays the same, even if the bank base rate goes up or down. This is good if the rate goes up, but bad if it goes down.
Variable Rate: The interest rate you pay changes with the bank base rate, so it can go up or down depending on what's going on in the open market. You will always pay the current market rate plus an agreed-upon premium, but your monthly payments could go up or down because the base rate can change. This is good if interest rates go down, but if they go up, you may end up paying a lot more.
Commercial loans can be a good way to get the money you need for a number of reasons. The first is the flow of cash. Since your loan payments are set and agreed upon for the length of the loan, you can better plan how to spend your money from month to month. Second, you have a lot of options for how to use the loan, such as paying off other loans with higher interest rates. Commercial loans also let you keep ownership of your business because you don't have to sell a piece of it to an outside investor in order to get money. Commercial loan interest payments are also tax deductible and are made with money that has already been taxed. Another benefit is that if you back your loan with capital equipment, you keep the equipment legally. You should know, though, that if you don't pay back the loan and fall behind on payments, the lender can seize and sell any assets that backed the loan to get the money back.
Comparing the APRs of different commercial loans is a good way to see how competitive they are, but it's also important to read the fine print. If you think you might be able to pay back the loan before the due date, you should look into the lender's policy on early redemption. Some lending companies will charge you up to two months' worth of interest if you pay off the loan between 3 and 5 years early. This can make the total cost of the loan go up. It might be cheaper to get a loan with a slightly higher APR but no penalty for paying it back early.
