Commercial Loan

AAA

DEFINITION of 'Commercial Loan'

A debt-based funding arrangement that a business can set up with a financial institution. The proceeds of commercial loans may be used to fund large capital expenditures and/or operations that a business may otherwise be unable to afford.

INVESTOPEDIA EXPLAINS 'Commercial Loan'

Due to expensive upfront costs and regulation related hurdles, smaller businesses do not typically have direct access to the debt and equity markets for financing purposes. Therefore, they must rely on financial institutions to meet their financing needs.

Similar to consumer credit, businesses have a variety of lending products to choose from. A line of credit, term loans and unsecured loans are just a few examples. However, small businesses should shop around at different institutions to determine which lender offers the best terms for the loan.

RELATED TERMS
  1. Equity Financing

    The act of raising money for company activities by selling common ...
  2. Commercial Investment

    An investment in a for-profit enterprise involved in the buying ...
  3. Unitary Thrift

    A company that controls a single savings-and-loan association. ...
  4. Consumer Credit

    A debt that someone incurs for the purpose of purchasing a good ...
  5. Debt Financing

    When a firm raises money for working capital or capital expenditures ...
  6. Line Of Credit - LOC

    An arrangement between a financial institution, usually a bank, ...
RELATED FAQS
  1. Why is Average Collection Period important to a company?

    An average collection period shows the average number of days necessary to convert business receivables into cash. The degree ... Read Full Answer >>
  2. Why do companies issue debt and bonds? Can't they just borrow from the bank?

    Companies issue bonds to finance operations. Most companies can borrow from banks, but view direct borrowing from a bank ... Read Full Answer >>
  3. What would happen to a company's external fund requirements if it reduces the payout ...

    In short, the stronger the company's internal cash flow, and in turn cash position, the less the need to draw on an external ... Read Full Answer >>
  4. What is the difference between investment banks and merchant banks?

    Merchant banks and investment banks, in their purest forms, are different kinds of financial institutions that perform different ... Read Full Answer >>
  5. What is the difference between asset-based lending and asset financing?

    In the most common usage, the terms "asset-based lending" and "asset financing" refer to the same thing. Asset-based lending ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Will Corporate Debt Drag Your Stock Down?

    Borrowed funds can mean a leg up for companies or the boot for investors. Find out how to tell the difference.
  2. Options & Futures

    Different Needs, Different Loans

    Find out what options are available when it comes to borrowing money.
  3. Credit & Loans

    What is a Syndicated Loan?

    A syndicated loan is one that involves a group of lenders (called the syndicate) who pool their lending resources to make a loan.
  4. Professionals

    What Does Corporate Finance Do?

    Corporate finance is the subset of finance that involves how corporations use leverage to fund their operations and capital purchases.
  5. Entrepreneurship

    Microfinance & Macrofinance: What's The Difference?

    What are the key differences between microfinance and macrofinance? Investopedia takes a look.
  6. Entrepreneurship

    How Microfinance and Investment Banking Compare

    Investment banks and microfinance institutions (MFIs) provide similar services, but the clients they serve and the incentives that motivate them are very different.
  7. Investing

    What is Debt Financing?

    When a company needs to pay for something, it can pay with cash, or it may finance the purchase. Financing means that it gets the money from other businesses or sources, in return for obligations. ...
  8. Entrepreneurship

    Mezzanine Financing

    Learn about this alternative method of financing companies use to finance expansion.
  9. Personal Finance

    Promissory Notes: Not Your Average IOU

    These may be a handy way to borrow money, but this convenience does not come without risk.

You May Also Like

Hot Definitions
  1. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  2. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  3. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  4. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  5. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  6. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!