Commercial loans, when used correctly, can be a great way to help grow your business. They provide the funds you need to purchase equipment, expand operations and hire new employees.

What are commercial loans?

Banks and other lenders offer commercial loans to businesses to finance operations and investments. The interest rate charged on these loans depends on several factors, such as the borrower’s creditworthiness, size of the loan, the length of repayment period and the type of security offered. Knowing how each factor affects your loan rate will help you determine which terms are best for your needs.

What are the different types of commercial loans?

• Commercially-secured loans — These loans are secured by a business asset such as real estate, inventory or equipment. The lender can use the asset to recoup the loan amount if you default on payments.

• Residentially-secured commercial loans — These loans are secured by a residential property such as a house. The loan is typically used to purchase business-related equipment, inventory or real estate. 

• Bank bill loan — Bank bill loans are short-term loans with maturities typically up to one year. They are often used to finance the purchase of goods or services within a specified period of time.

Business loan interest rates

• Fixed rates — Fixed rates are the most common type of loan rate. This means that your interest rate will remain the same for the life of the loan. Fixed-rate loans are usually offered with terms of up to 10 years and usually require collateral.

• Variable rates — Variable rates are usually offered with terms of up to three years and require little or no collateral. Rates on these loans will fluctuate based on market conditions, so it’s important to closely monitor interest rate movements when this type of loan is used, as it will determine your repayment amount. 

How are commercial loan interest rates determined?

The lender will consider various factors when determining your commercial loan rate, such as:

• Your credit score — Higher scores indicate that you are a responsible borrower, which could result in a lower interest rate. 

• The size and term of the loan — Larger loans usually have a lower interest rate than smaller ones. Longer repayment terms will also typically have lower rates than shorter terms. 

• The type of loan — Certain types of loans, such as those secured by collateral, usually offer lower rates.

• The amount of risk involved — Riskier loans usually carry higher rates to offset the lender’s risk.

Normal lending criteria apply. Fees and charges are payable. Terms and conditions apply.

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Disclaimer: The information above is of a general nature only and does not consider your personal objectives, financial situation or particular needs. You should consider seeking independent advice regarding your legal, financial, taxation or other needs, to check how the information relates to your particular circumstances. We do not accept responsibility for any loss arising from the use of, or reliance on, the information. All loan applications are subject to normal lending criteria. Fees and charges payable. Terms and conditions apply.