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LSDefine
Simple English definitions for legal terms
commercial loan
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A quick definition of commercial loan:
A commercial loan is when a bank or other financial institution gives money to a business for a short period of time, usually between 30 to 90 days. The business has to pay back the loan with interest. It's like borrowing money from a friend, but instead of a friend, it's a bank and you have to pay them back more than you borrowed.A more thorough explanation:
A commercial loan is a type of loan that a financial institution gives to a business, usually for a period of 30 to 90 days. The borrower must pay back the loan with interest within the agreed-upon time frame. Commercial loans are often used to finance business operations, such as purchasing inventory or equipment, expanding the business, or covering short-term cash flow needs.
Example: A small business owner needs to purchase new equipment to expand their operations. They apply for a commercial loan from a bank and are approved for a $50,000 loan with a 6% interest rate. The loan must be repaid within 60 days. The business owner uses the loan to purchase the equipment and pays back the loan with interest within the agreed-upon time frame.
This example illustrates how a commercial loan can be used to finance a business's expansion and how the borrower must repay the loan with interest within the agreed-upon time frame.