Commercial Loans – Intermediary Versus Long-Term Loans

You might think all loans are basically the same thing. One party loans money to another in exchange for receiving payments back along with interest. While this is generally true, the world of commercial loans is infinitely more complex than anything you might run into when buying your home. There are different types of loans. The most basic breakdown is between what are known as intermediary versus long-term loans.

The nature of business from a financing perspective is very different than what you find with personal finance. You need different types of financing in business just to survive, a fact that isn’t true in personal finance. Don’t get me wrong. You might feel you need those credit cards in addition to your mortgage, but you really don’t. This isn’t the case in business.

The first type of business loan is known as the intermediary loan. This is known generally as a working capital loan. Huh? What? In simple terms, this simply means that we are talking about a short term loan of one to three years. The purpose of the loan is to help you pay for basic business items such as small equipment upgrades, increased staffing and so on.

The second type of business loan classification goes by the very obvious name of the long-term loan. Commercial banks are not fond of providing this type of financing to small businesses. The problem is the majority of small businesses fail. Given this, the bank can’t risk a majority of its loans going bad. Just look what happen with the real estate crises of the Great Recession. As a result, the only real way to get these types of loans is to get a government agency like Fannie Mae to guarantee the loan.

Commercial financing is a complex arena. Whether you need an intermediary loan or a long-term one, it is vital that you know what the bank wants to see and spend the time and effort giving it to them.

Thomas Ajava writes about commercial financing loan topics and issues for CommercialFinancingLoans.com.