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Commercial Interest Rates - Tips on Commercial Interest Rates

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Similar to mortgage interest rates, commercial interest rates dropped during 2009 but they are higher than home mortgage rates. Just like residential mortgage rates, commercial interest rates are secured by reviewing credit scores and debt to available income. Due to the nature of the loan and the possibility of several investors, commercial interest rates often involve much more detail than consumers might expect.

The interest rate appointed to a commercial loan will vary depending on loan type and length of the loan. Other factors enter in to the lender’s decision on the percentage of interest charged to the loan. Once the interest rate for a commercial loan is determined, the borrower usually opts for a fixed interest rate. A fix interested rate is preferable for most borrows and lenders. It is less risky to both parties.

Commercial loans are much more complex than residential loans. A typical commercial loan is limited to a 10 year time frame. The specific length of time can be much shorter or longer depending on the details and the purpose of each loan. It is a good idea for consumers to shop around for the best commercial interest rate available. Some lenders specializing in commercial loans offer better terms. Competition among lenders can help the borrower—especially if those applying for the loan have a solid credit history or can prove their proposal will be profitable. The more solid information you provide, the better the commercial interest rate.

In addition to past payments and convincing a lender you are a good credit risk, a well written business plan often influences a lender to offer a good commercial interest rate.

Another difference between commercial loans compared to residential loans is the consequence of defaulting on the loan. A bad residential loan could result in a foreclosure with the borrower held responsible for resolving the balance. A commercial loan, on the other hand, is often given to a group of people and not just one party. Commercial loans and business loans are often written for a corporation, a partnership or some other legal entity involving several people. Using higher commercial interest rates is a way to offset the risk to a lender.

Defaulting on a commercial loan can end up with the lender taking any collateral placed on the loan but no individual party can be held responsible to pay back money on the loan. Lenders often have no recourse in recovering funds when a commercial loan isn’t paid. For that reason, a specific clause regarding merchandise or circumstances of seizing items or property is often attached to a commercial loan.

Commercial interest rates also vary because federal money is dispersed to lenders such as a bank or another lending institution. The government charges the bank a certain percentage for the money. In turn, the bank charges the customer (or group of customers) an interest rate determined. All of these numbers and percentages involving commercial interest rates vary according to the Federal rate which can change each quarter.

Commercial interest rates and commercial loans can be quite complicated. It is always a good idea to turn to an expert for advice. Unless you are a savvy business person with friends who are experts on commercial loans and interest rates, it is a good idea to hire a professional to deal with all the red tape and fine print involved when making a commercial loan. It is also a good way to protect yourself and other investors.

Whether you are buying a building, stocking inventory for your store or starting your own clothing line, at some point you might need to consider a commercial loan and the higher interest rate that goes with it.

Commercial Line Of Credit - How To Apply For a Commercial Line of Credit [next] [back] Commercial Equipment Lease - The Benefits of the Commercial Equipment Lease

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