Commercial loans

Commercial loan is one of the forms of a short-term crediting.

Nowadays, under existing economic conditions, the majority of the enterprises need very often financial resources in order to exercise business affairs, for example – for the realization of long-term investment projects. The enterprises need also the circulating capital replenishment. In such cases, the commercial loan can become a source of money. Both – juridical person and physical person can get such credit.

Commercial loan takes a very important place in the banks activity, making a considerable part of their credit portfolio. There are many kinds of commercial loans, applied in different situations connected with conducting of economic activities by the enterprise.

The enterprise may need this credit for the replenishment of circulating assets in order to pay money for manufacture or raw materials. Such credit is usually a short-term one and it is repaid after the realization of the last production of the enterprise. This kind of credit can also be of a seasonal nature. In this case it is given to the enterprise during the period when seasonal decrease in its economic activity is remarked.

Commercial loan is very important in the sphere of construction. It helps to finance habitable and inhabitable construction. This kind of crediting is considered to be a temporary one and it is used as a salary for workers and for the purchase of the equipment and building materials. When the building is finished, the credit is paid off by means of the long-term credit which is given by the other creditor.

The commercial loan is also used by the dealers of different securities. They want to get obligations at the moment when their own securities are not turned yet into financial resources. Such credits are usually willingly given by the banks because they have trustworthy maintenance.

One more type of the commercial loans is the crediting of the assets. In this case, the assets of the borrower appear in the role of the credit maintenance which will be soon turned into money.

Analyzing the information about the credits, which are given annually, it is possible to draw a conclusion that financial institutions give more willingly short-term credits with average term in 50 days. In the situation with the long-term credits, the rate is usually not fixed. It is the changing rate that favors the decrease of the risk for the crediting organization. The banks also compensate the long-term credit risk by the establishment of a higher rate of the credit. More often the higher rates are also established under small credits.

Recently the commercial loans are more often used by physical persons in order to receive seed capital for the opening of the enterprises of a small-scale business. What does the borrower need in order to get this type of credit? First of all, the creditor has to give the personal information and the information about the business project and the sum of money which is planned to be borrowed. The creditor has also to inform about how this sum will be used and how the borrower is going pay off the credit. Business plan should be worked out. If the borrower already has working business, it is necessary to give the information about its efficiency. The creditor will define the sum of the credit which can be given to the borrower, proceeding from the borrower’s ability to pay off a debt. That is why it is necessary for the borrower to give the information about the future income for the period of at least 2 years. Besides, the creditor can take an interest in the existence of the alternative sources which can help to pay off the debts in the case if the business of the borrower does not bring necessary income. Very often the creditor demands the allocation of the security. In this case the property of the borrower is usually mortgaged.

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