Types of Bank Loans
Bank term loans are the basic vanilla
commercial loan. They typically carry fixed interest rates,
monthly or quarterly repayment schedules and a set maturity
Two of the major
characteristics that vary among bank loans: the term of the
loan and the security or collateral required to get the
Bankers tend to classify term loans into two categories:
Intermediate-term loans: Usually running less than three
years, these loans are generally repaid in monthly installments
from a business's cash flow. Repayment is often tied directly to
the useful life of the asset being financed.
- Long-term loans:
Most are between three and 10 years, and some run for as long
as 20 years. Long-term loans are collateralized by a
business's assets and typically require quarterly or monthly
payments derived from profits or cash flow.
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Interest rates on long-term
financing tend to be higher than on short-term financing.
Secured or unsecured debt.
Debt financing can also be secured or unsecured. A secured loan
is a promise to pay a debt, where the promise is "secured" by
granting the creditor an interest in specific property
(collateral) of the debtor. If the debtor defaults on the loan,
the creditor can recoup the money by seizing and liquidating the
specific property used for collateral on the debt.
An unsecured loan is also a promise to pay a debt. but unlike a
secured loan , the promise is not supported by granting the
creditor an interest in any specific property. The lender is
relying upon the creditworthiness and reputation of the borrower
to repay the obligation.
types of bank loans
In addition to consumer loans and mortgages, the
most common types of loans given by banks to startup and
emerging small businesses are:
• short-term commercial loans for one to three years
commercial loans: generally secured by real estate or other
leasing for assets you don't want to buy outright
• credit cards: higher-interest, unsecured revolving credit