The Average Commercial Loan Terms

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Commercial lending products exist to suit just about any need of a business large or small. There are a number of loan variations too, ranging from mortgages to term loans to lines of credit. Unlike residential loans, commercial loans do not always have set terms. While the specifics can be negotiated, average commercial loan terms fall into certain ranges.

Commercial Mortgages

Commercial mortgages are used for the purchase or refinance of commercial real estate. Commercial mortgage terms range from five to 25 years. The rate is rarely fixed for more than five years. Either the rate resets every five years or the loan balloons. When the rate resets, the loan is fully amortized over the term. When the loan balloons, the loan is amortized over a longer period -- 25 years for example -- but is paid off in a shorter term, such as five years. In this case, the final payment "balloons" to include all unpaid principal and interest.

Term Loans

Commercial term loans are short-term financing for non real estate purposes. The rates are typically fixed and the term runs from three to 10 years. Ten-year terms are a bit rare, however, with most commercial term loans capping at seven years.

Lines of Credit

Lines of credit give borrowers the availability to draw cash when they need it. Working capital lines are the most common. These are one-year lines that are renewable on an annual basis. The borrower must provide updated financial information to prove he can still support the line. Construction lines or lines of credit for specific financing are nonrevolving. This means the borrower advances on the line, but he can't draw that amount again, even if he pays it back. The term for these lines typically run from three to 18 months.

Time Note

Time notes are short-term, interest-only financing to support a borrower's temporary needs. These are also known as "bridge loans." For example, a borrower may need funds to purchase a new property. He may not be able to do this without selling his current property. The time note will buy him the time necessary to sell his existing property. When he does, the funds will be used to pay off the loan. The term typically runs between three and 24 months.

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