What Is a Commercial and 🔯Industrial (C&🍒amp;I) Loan?

A commercial and industrial (C&I) loan is a loan made to a business or corporation. Commercial and industrial loans provide companies with funds that can be used for various purposes, including working capital or to finance 澳洲幸运5官方开奖结果体彩网:capital expenditures such as purchasing machinery.

Typically, C&I loans have variable interest rates and are backed by collateral. As of February 2022, businesses and corporations in the United States had more than $2.48 trillion in C&I loans outstanding.

How Commercial a🧔nd Industrial (C&I) Loans W🎶ork

Commercial and industrial loans usually have variable rates of interest that are tied to the bank prime rate or another 澳洲幸运5官方开奖结果体彩网:benchmark rate such as the 澳洲幸运5官方开奖结果体彩网:London Interbank Offered Rate (LIBOR). Many borrowers must also file regular 澳洲幸运5官方开奖结果体彩网:financial statements, which could be quarterly or annually, depending on the bank's requirements. Lenders usually require proper maintenance of the loan collateral and hold borrowers to certain covenants, such as a 澳洲幸运5官方开奖结果体彩网:debt service coverage ratio (DSCR).

Although large corporations may take out C&I loans, they also have access to the financial markets for funding by issuing bonds or equity shares. However, many small and medium-sized businesses do not have access to issuing stock shares since they may not be traded on a stock exchange. As a result, these small and mid-size companies use C&I loans to fund their 澳洲幸运5官方开奖结果体彩网:cash flow and expenditure needs.

C&I loans are different from 澳洲幸运5官方开奖结果体彩网:commercial real estate loans (CRE), which are mortgage loans used for commercial property purposes, including offices and hotels. Businesses might also use 澳洲幸运5官方开奖结果体彩网:mini-perm loans to cover the gap until a commercia💫l property becomes profitable.

Also, C&I loans are not the same as 澳洲幸运5官方开奖结果体彩网:consumer loans since only businesses can get commercial and industrial loans.

Pros and Cons of C&I Loans

C&I loans allow businesses to bypass the typically long and arduous process of drumming up equity investors. Not only is it more costly and time-consuming to obtain equity investors, but being a publicly-traded company means being accountable to those investors and adhering to additional regulations from the U.S. 澳洲幸运5官方开奖结果体彩网:Securities and Exchange Commission (SEC). With the ne💯cessary collateral, C&I loans can help companies raise funds needed for expansion.

However, C&I loans need to be paid off, and in some cases, within a few years. Also, if the interest rate is high, debt servicing costs can hinder a company's cash flow, taking away from the business’s working capital.

How Businesses Use C&I Loans

C&I loans can be used at any time in the life of a business when it needs to generate cash. For example, a startup may take out a C&I loan to get up and running because the outlay of cash at the onset can be greater than the revenue gen💯erated from sales. The loan can be paid down as the company generates revenue.

C&I loans are also useful to help businesses fund the purchase of capital property, like machinery and equipment. They can be used to purchase and renovate new facilities, buy inventory, furnish a retail store or set up a production line. The funds can also be used to join a competitor or supplier in a 澳洲幸运5官方开奖结果体彩网:joint venture.

Tracking C&I Loans

The 澳洲幸运5官方开奖结果体彩网:Federal Reserve Board of Governors keeps track of all C&I loans in the country. Growth in C&I loan outstanding tends to correlate with 澳洲幸运5官方开奖结果体彩网:Gross Domestic Product (GDP) growth. Economic downturns and 澳洲幸运5官方开奖结果体彩网:recessions can impact the level of C&I loan issuance.

Also, banks tend to reduce the supply of C&I loans when there's an increase in 澳洲幸运5官方开奖结果体彩网:credit risk or the risk that the borrower may default on the loan. For example, in a recession, companies may suffer a decline in revenue due to less demand for their product or service. If companies cannot repay the loans, banks may cut the supply of new C&I loans. As a result, monitoring new C&I loan issuance and the number of loans in default can be an effective indicator of the financial health of companies and the overall economy.

Correction—April 1, 2022: A previous version of this article𒈔 misstated the total amount of outstanding C&I loans in the U.S.