Commercial Loans vs. Business Loans: 10 Key Differences and Similarities

Every company wants to take their business to new heights. However, achieving these aspirations often requires some financial backing and funds. Securing funds is crucial for fueling operations, pursuing growth opportunities, and venturing into new markets. A sure way to obtain financing is through a business loan online from a financial institution. 

Commercial and business loans are the common types of loans used by many businesses. These loans serve as lifelines for businesses, enabling them to navigate daily operations and start new projects. However, often businesses find themselves confused between the two, unable to understand if they are distinct entities or interchangeable terms. 

If you too find yourself grappling to understand the similarities and differences between these two, then here is all you need to know:

What is a Commercial Loan

A commercial loan is a funding arrangement between a business and a financial institution, typically a bank. They are commonly used to finance major capital finances and cover operational costs that a company may not be able to afford otherwise. 

What is a Business Loan?

A business loan is a general term used to describe any type of loan that helps provide funds for various business operations and growth initiatives. They can be used for everyday costs, smaller projects, working capital, inventory purchases, or any other business-related expenses. 

Suggested Read: Business Loan: Know Meaning, Types And How To Apply

Types of Commercial and Business Loans

There are many types of commercial and business loans, some of which include:

• Term loan: A term loan is a lump sum of money that a business borrows from a lender, with a fixed interest rate and a set repayment schedule.
• Commercial Vehicle Loan: This loan is specifically designed for businesses that purchase trucks, vans, or other commercial vehicles.

Suggested Read: How To Get Commercial Vehicle Loan In India?

• Lease Finance: Lease finance is a type of financing in which a business leases certain assets from a lender, rather than purchasing them outright.
• Construction equipment loan: This type of loan is designed to finance the purchase of expensive construction equipment.
• Bank overdraft facility: This allows a business to borrow money from its bank account, even if the account has a zero balance.

Key Differences and Similarities Between Commercial and Business Loans

Here are key differences and similarities between Commercial loans vs Business loans:

Difference 

Purpose

Commercial loans are mainly used for big projects that require larger sums of money, such as buying buildings, construction, etc, while business loans are versatile and cater to various business needs such every day costs or smaller projects.

Loan Amount

The loan amount offered in commercial loans is much larger compared to business loans, as commercial loans are generally given to businesses with substantial amounts of needs.

Target Borrower

Since commercial loans are much suited for substantial, long-term investments, their target borrowers are larger businesses with b finances. On the other hand, business loans cater to many business needs, making them suitable for businesses of various sizes, including startups.

Eligibility 

Commercial loans have stricter eligibility criteria and are usually given to large businesses with a proven track record. For business loans, the eligibility criteria are much easier as it serves diverse businesses including new businesses with not much assets or profit record.

Collateral

Commercial loans require the company to put any property or machinery as collateral, so in case the company is unable to repay the loan, the bank can use that collateral as repayment. On the other hand, business loans are more flexible, and you may not have to offer any collateral, especially if you are borrowing a small amount or have a good credit score.

Interest Rates

The interest rate offered in a commercial loan can vary depending on factors specific to the industry and the perceived risk associated with the business. In business loans, the interest rates are more borrower-centric. Factors like your credit score, the type of business loan you're seeking, and the lender's policies will all play a role in determining the offered rate.

Application Process

The application process for commercial loans typically involves a more intricate and lengthy procedure due to the requirement for collateral and detailed financial information from the company. In contrast, business loans often feature a streamlined and expedited application process, making them simpler and quicker to obtain.

Similarities

Support Business Growth

Ultimately, both commercial and business loans are designed to support business growth and cater to diverse business needs, whether it's through expansion, working capital, or other operational needs

Debt-Based Financing Option

Both commercial loans and business loans are debt-based financing options that involve borrowing money from a lender, which must be repaid with interest.

 Creditworthiness Evaluation

Lenders or financial institutions evaluate the creditworthiness of the business or its owners when considering loan applications for both commercial and business loans.

Overall, understanding the similarities and differences between commercial and business loans is important to make informed decisions about which loan aligns with your business needs the most. At Muthoot Finance, we offer a range of online business loans including a small business loan that offers an easy way for MSMEs to finance their business requirements like working capital, capital expenditure, business expansion etc. Please visit your nearest Muthoot Finance branch to learn more or apply for a Small business loan online.