What Is a Commercial and Industrial (C&I) Loan?

Commercial & Industrial Loan for Business Growth
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Great ideas for growing your business need funding and Commercial and Industrial loans are a great way to fund that expansion. Commercial and Industrial Loans (called C&I loans) are loans to businesses (not to individuals). They are usually short-term loans, with collateral required. The loan rates are tied to the prime rate or LIBOR

Commercial and Industrial (C&I) loans are an important—and growing—part of U.S. banking offerings for businesses. As of March 2018, over $2,122 billion in loans were in place, up from $1,065 billion in 2000

Why have C&I loans become so popular? According to American Banker, "Bank lending is especially important for smaller businesses that are unable to fund investment by issuing bonds or stock." Because they are short-term, these loans are used primarily for working capital or purchase of capital equipment for startup or expansion.

C&I loans aren't used for real estate (land and building) financing because these purchases have long-term financing (mortgages).

C&I Loans Pros and Cons

C&I loans are popular because it is easier to finance business growth with debt than with equity. Financing with debt takes less time and it doesn't involve adding shareholders. It takes a great deal of time and money to gather up investors, and having investors means having someone else looking over your shoulder. 

Financing growth and expansion by using ​debt—a C&I loan—can be done quickly if you have the necessary collateral and loan application documents. The disadvantage of debt is that it must be paid off, and debt service (interest expenses) can be high. Your business must continue to pay off the loan, taking away cash needed for operations. 

What Are C&I Loans Used For? 

There are times in the life of a small business when finding a C&I loan might be helpful: 

Working capital. Working capital loans are short-term loans to help a business with cash-flow needs. Two times in the life of a business when it might need extra cash are at startup and during expansion. At these times, the outflow of cash is greater than cash coming in, until new customers and payments can be generated. 

Capital financing. To expand and grow, small businesses need new equipment and machinery and other capital (property) items. A C&I loan can help open a warehouse, set up a production line, make repairs or renovations to existing facilities, furnish a retail store, or purchase an inventory of products. 

Acquisitions and mergersYour business might want to join with a supplier to produce a new product or combine with a competitor in a joint venture. Funding these business ventures with C&I loans is a good way to grow your business. 

What Do I Need to Get a C&I Loan? 

You may need one or all of these guarantees to get a C&I loan:

Collateral. As noted above, you will need collateral—assets you can contribute as security for the loan. Loans that are secured with assets are easier to get and have lower interest rates. Unsecured loans are difficult for startups to get. Lenders want collateral they can sell to recover at least some of the loan amount if the lender doesn't pay or goes bankrupt. The amount of collateral needed depends on the loan amount.

If you are buying equipment or vehicles, they can be used as collateral. Inventory and accounts receivable (money owed your business by customers) are also used as collateral. During the loan process, the lender will value the asset and discount it to account for the loss of value if it must be sold quickly. For example, receivables valued at $100,000 might only bring 70%.

Personal Guarantees. If you are starting your business, you may not have collateral. It's difficult to get a C&I loan without collateral, but you might be able to find a lender who will take a personal guarantee. You may need to pledge some personal assets.
Co-signer. If all else fails, you may be able to find someone who will co-sign your C&I loan. This person will need to have some personal or business assets to use as collateral. 

Documents and Application. You will need to complete a package of documents for the loan. To begin with, you will need a business plan showing the amount you need, what it will be used for, and how you plan to pay it back.

You will need financial statements showing your past business performance and business (and maybe personal) tax returns for several years. Some lenders ask for a sources and uses of funds statement.

Even though the C&L loan is for your business, you will need to give the lender personal financial documents, including a personal financial statement.

How Do C&I Loans Compare With Other Business Loans? 

Some other business loans you might consider: 

Commercial Real Estate (CRE) loans are for the purchase of business real estate; they are the equivalent of a mortgage loan for personal real estate. These loans are longer-term loans, using the real estate as collateral.
A line of credit. A credit line is a way to put cash in your business bank account, and its advantage is that you only pay interest on the amount you take out. A credit line may be secured or not secured, based on the circumstances; non-secured credit is financed at a higher interest rate. 

Factoring is a way to get funding by using accounts receivable as collateral. The receivables are steeply discounted, but you can get the cash quickly. 

Can I Get an SBA Loan? 

While the Small Business Administration (SBA) doesn't loan directly to businesses, you may be able to get SBA assistance with a C&I loan. You might want to consider an SBA-guaranteed 504 loan, which can be used for equipment or expansion.

A Final Note: Your Presentation Is important

A key element to your success in getting a C&I loan is the presentation. Here are some tips for making a great loan proposal.