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Put simply, commercial loans are a method for business owners to meet business needs by receiving up-front money from a financial institution in exchange for repayment with interest. The financial institution, typically a bank, credit union, or online financer, is known as the lender, while the business receiving the money is known as the borrower.
The borrower will apply for a loan and the lender evaluates the borrower based on several factors to determine their creditworthiness. Those factors can include business credit scores, age of the business, the business’s industry, and more. The lender may also charge origination fees along with several other upfront costs.
The lender can also require the borrower to put up collateral, or valuable assets that the lender can take possession of in the case of default. If the borrower puts up collateral, that loan is called a secured loan. Alternatively, if the lender requires no collateral, that loan is said to be unsecured.
