You may have heard of commercial and industrial loans but are curious as to why you might need one and how it will benefit your business. Similarly to all business loans, commercial loans are for businesses and enterprises that need financing options. They do differ slightly from Small Business Administration (SBA) loans. We’ll take you through the basics of commercial and industrial lending and how it might be a fit for your business.
What is Commercial and Industrial Lending?
Commercial and industrial loans (or C&I loans) provide funds to businesses or corporations that can be used for things like working capital, capital expenditures such as machinery, vehicle, and equipment purchases, and to purchase owner occupied real estate.
To differentiate between the two types of loans, SBA loans are typically a good option for businesses that are just getting off the ground, whereas commercial and industrial loans are employed more by established businesses. Both seek to help companies grow and expand.
C&I loans for working capital typically have variable interest rates based on the bank prime rate, which is the interest rate banks use to set rates for different types of loans. C&I loans for capital expenditures and real estate purchases typically have fixed interest rates. C&I and SBA loans are supported by collateral and usually require the personal guarantees of owners. While C&I loans are fully dependent on the bank or financial institution, SBA loans are partially guaranteed by the federal government.
Borrowers who need a C&I loan may also need to provide regular financial statements depending on the bank’s requirements. This often includes the most recent business tax returns, most recent balance sheet and income statements, the most recent bank statements, and accounts receivable/payable aging reports. There may be some personal financial information required by the owner as well.
Pros and Cons of C&I Loans
Pros of C&I Loans
- Flexible Terms: These loans can be shaped around your business’s needs, from repayment schedules to how the funds are used.
- Keep Your Ownership: You get the capital you need without giving up equity or bringing in outside investors.
- Competitive Rates: Interest rates are often lower than other financing options, which helps keep borrowing costs in check.
- Easier to Access: Compared to raising equity, C&I loans are often simpler to qualify for, making them a realistic option for many businesses.
- Multiple Uses: Whether it’s buying new equipment, covering daily expenses, or funding a big expansion, the money can go where it’s needed most.
Cons of C&I Loans
- Regular Payments: Like any loan, you’ll have to make scheduled payments, which can put pressure on cash flow if revenue slows.
- Changing Interest Rates: If the loan has a variable rate, rising market rates could increase your monthly costs over time.
- Shorter Timelines: Many C&I loans come with short- to mid-term repayment periods, so you’ll need a plan to pay it back fairly quickly.
- Collateral Needed: Lenders often require business assets or property as security for the loan.
- Paperwork & Approval: While easier than seeking investors, you’ll still need to provide financial documents and meet the lender’s requirements.
How to Find C&I Loans for Your Business
C&I loans can be used at any time throughout a business’ lifetime in order to generate cash. So, whether that’s needed to cover costs of running a business that are greater than the revenue generated from sales, or to expand business operations by purchasing capital property, facilities, inventory or join a competitor or supplier in a joint venture. the possibilities are pretty endless.
C&I loans can be beneficial to businesses who want to avoid finding equity investors, because the process is much more time-consuming and costly, and being publicly traded holds you accountable to investors and regulations.
How Can Republic Bank of Chicago’s C&I Banking Help Your Business Grow?
At Republic Bank, we offer commercial and industrial loans with flexible terms, competitive rates, and a partnership to help you succeed. Our financing options include traditional term loans, lines of credit, equipment financing, accounts receivable loans, and asset-based loans.
If you’re interested in learning more or starting the application process for a C&I loan, give us a call at 800-526-9127 to get in touch with our expert representatives. Plus, check out our resource library for more financial tips.
