Money IQ

Commercial and Industrial Loans on the Rise

Banks large and small are looking to increase their lending activities as the economy continues to show signs of improvement. 

At the beginning of the economic downturn a lot of financial institutions slowed or halted lending, especially for commercial real estate related loans. 

Since this time, many banks have changed their lending appetite and are now more diversified in their product offerings. 

Commercial real estate, development loans and other real estate secured loans, once a common staple of community banks, are fewer and much more difficult to obtain in today’s post real estate decline environment. 

With this new more diversified portfolio, financial institutions are searching for more commercial and industrial loans, often referred to as C&I loans. 

C&I loans are characterized as loans to corporations for the purpose of working capital, accounts receivable lines of credit, equipment and other capital expenditures including the financing of the company facility. 

Repayment of these loans is dependent on the operating success of the company and not on the general real estate markets. 

New Mexico is home to many locally owned businesses that produce products or services not related to the general real estate markets and meet the definition of C&I loans. 

If you are seeking a loan for your commercial business, large or small, owners should be prepared to provide a personal guaranty and understand that their personal credit and cash flow will be reviewed as well. 

Here is a list of things you should be prepared to provide and understand:

• Up to three years of financial statement and tax returns on the company
• Up to three years of tax returns on the owner(s) of the company and a current personal financial statement
• Most C&I loans are collateral secured

o   Accounts receivable and accounts payable aging report (for accounts receivable secured lines of credit)

o   Inventory and or equipment listing for these types of loans

o   Real estate for purchase or finance of operating facilities

• A defined repayment plan – generally cash flow of the company
• Loan maturities can be as short as one year for working lines of credit and longer for term debt (multiple years with monthly payments)
• Interest rate structures are generally variable rate, but some institutions do offer fixed rates for shorter term debt
• Be prepared to pay a fee for new loan requests – typically 1 percent of the new funds being requested
• Be prepared to provide updated financial data no less than annually – financial institutions need to understand your company’s financial health on a regular basis

If you have interests in a commercial loan visit a commercial banker for more information.

Editor’s note: Al Hernandez is a Senior Commercial Banker with Los Alamos National Bank and currently runs the Albuquerque market for the bank. Al has over 23 years of banking experience that includes running banks and commercial lending.

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