Commercial Bank Lending

Financial institutions offering commercial bank lending primarily service the needs of corporations and larger businesses. Also known as business banking, commercial banks are not only banks but intermediate business between banks and other financial institutions unlike retail banking which provides services directly to consumers. These high-end institutions fund corporations, sole proprietorships and partnerships on many levels - from large businesses to overseas companies in a variety of nations - and include many different services from mortgage lending to supplying international capital to low and middle-income countries.

Companies need capital to achieve their vision and financial goals. Commercial bank lending is there to help. Representing over 18 percent of all financial assets, commercial lending provides these companies with the funds they need to grow their business. Commercial loans, often called business or industrial loans, can be used for land, to purchase buildings, or purchase capital and equipment to use for manufacturing, distribution, wholesale, transportation, communication and much more. Although still a form of debt, these loans are not available for items such as investments or personal expenses. Companies often choose a revolving line of credit to purchase materials or merchandise and repay the debt as merchandise sells. Credit is extended as it is paid off, much like a credit card, and can be used for replacing equipment or restructuring buildings. Farmers can also take advantage of commercial bank lending to expand their agricultural farms and purchase much-needed equipment.

One of the highest expenses of a business owner or corporation is real estate. Since commercial bank lending usually have more capital to offer, corporation often use them as a real estate lender. Loans can range from $200,000 to $15 million that can be used for purchasing land and constructing office buildings, warehouses, or manufacturing centers. It can also be used to refinance or make repairs and improvements on the property. Funds can also be used to develop for subdivisions, condominiums or apartment buildings of five units or more. Terms on loans usually average about 30 years and have low adjustable rates. Institutions, mainly federal agencies, that offer commercial bank lending also purchase real estate loans from smaller banks to reduce the amount of risk if the borrower defaults.

But getting a commercial real estate loan is a little more difficult than most people think. Lenders scrutinize the borrowing company or corporation, the actual building that will be inhabited, as well as the tenants that will live there, in the case of subdivisions, condominiums or apartment buildings. If the corporation has a history of bad credit, the building to be purchased needs work or if the tenants that will inhabit the building are risky, the lender may not willing to invest in the property. Some commercial bank lending institutions are even taking their loan offers online. Through various software programs, they connect buyers and brokers with lenders and provide comparative information on a variety of lenders for companies that are seeking loans. Since commercial real estate is so competitive, most companies just care about the bottom line - finding a lender that can offer the best deal. These sites also offer resources for alternative financing solutions and advice on how to go through the process. Turn around time on applications is almost immediate. Businesses must choose a broker who knows the commercial lending process and is familiar with all the players to walk them through the process. Some lenders will loan to industrial sectors while others will not. It is crucial to know the lender's specialty as well as how much the business can afford. Visit a few before deciding where to apply. Then choose a lender who is knowledgeable and who verifies information in a clear, organized and accurate manner.

Larger financial institutions that focus on or have departments that specialize in commercial bank lending often get are involved in what is considered international lending. In this highly specialized field, banks provide private capital to developing or middle income countries to invest in humanitarian projects or social reform to alleviate poverty. Public projects can vary from water and sanitation systems to oil and gas refinement to rebuilding roads and dams within the country. School systems also benefit from money borrowed. These funds generate jobs, promotes competition, transfers technology and help develop financial systems within the government. Loans and grants are also used to promote economic and policy reform within struggling nations. The Bible talks frequently about taking care of the poor around us. "Blessed is he that considereth the poor: the LORD will deliver him in time of trouble." (Psalm 41:1) But for American banks, these loans are not charity. Repayment terms range from 20 to 40 years. Grace periods are often extended on the principal for 10 years and no additional interest is accrued. However, some lenders do charge a small percent service fee - about 0.75% to the borrowing nation.

The commercial bank lending business is very diverse in what it offers to large businesses, corporations and even to developing countries. As a larger entity in the financial world, it might not be applicable to many individuals and small businesses that operate daily from various loans and lines of credit. But many of these institutions purchase outstanding loans from smaller organizations and at some time, most people will deal with the in some form. They keep our large corporations in business, our market economy operating, and millions of American jobs in tact.