Short Term Commercial Loans

Short-Term Commercial Loans

Short-term commercial loans are occasionally used to pay for the same kind of operating costs as a working capital line of credit. Short-term commercial loans are different from a line of credit in that a loan is generally used for a specific purchase. A short-term commercial loan has the following components:

A fixed amount of money that is borrowed.
A set amount of time.
Interest is paid on the lump sum.

Typically, short-term commercial loans require adequate collateral. Virtually every startup business has a shortage of collateral. This can be overcome by a good cash flow history and regular sales. These components if a businesses financial strength are very important to the lender. Because the loan is short term, a fixed interest rate will probably be available. This is a direct result of the limited risk of rising interest rates. Some short-term loans are as short as 90-120, but can be as long as 1-2 years. The collateral for the loan can be guaranteed by a businesses accounts receivable or inventory if there are not adequate fixed assets.

Most banks will only loan short-term money to startups and new small businesses. A commercial bank will hardly ever extend a commercial loan to a new borrower for anything longer than short-term. There are exceptions that may perhaps exist if a loan is guaranteed by real estate or co-signed by a third-party. An example of a third party co-signer is the Small Business Administration (SBA) or an outside investor.

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