In today’s business landscape, even the best idea is worthless if it can’t be funded. Businesses often need to make large investments, such as buying new inventory, investing in new pieces of equipment, hiring extra staff, or expanding to new properties and premises. Sadly, they don’t always have enough of their own capital to make such large purchases.
This is why many businesses make use of financial solutions like C&I loans and CRE loans. These two commonly-used types of business loans can be very beneficial when it comes to giving businesses the funds they need to grow and expand.
But what is the difference between them and which one should you choose? In this guide, we’ll take a close look at C&I loans vs CRE loans.
Definitions of C&I and CRE Loans
We’ll start off by covering the basics and explaining what each type of loan is. A C&I, or commercial and industrial loan, is a loan paid out to businesses and companies. It usually has a variable rate of interest and can be used for a wide range of purposes, such as buying equipment or renovating a store.
CRE loans, known as commercial real estate loans, on the other hand, are a form of a mortgage. They require a business to put up some form of commercial property as collateral (which the lender can then claim if the loan is not repaid). Such loans can help businesses purchase commercial real estates, such as office buildings and retail stores.
How Does C&I vs CRE Lending Work?
Next, let’s compare how these two types of loans work to get a better understanding of what similarities they have and where they differ:
As stated above, C&I loans usually have variable interest rates and can be used for a variety of purposes, such as the purchase of equipment. Note that C&I loans are usually short-term or paid off in just a few years.
CRE loans can have fixed or variable rates. A small business might choose to take out a CRE loan in order to buy a new business location or expand an existing one. Note that the lender will typically make use of their own credit platform to process the loan. Such loans can be long-term – often up to 20 years.
The Key Differences Between C&I and CRE Loans
So, where do C&I loans and CRE loans differ? Here are some of the major differences between these two forms of loans:
- Interest Rates – The interest rate for a C&I loan is almost always variable, which means it can change over the course of the repayment period. On the other hand, CRE loans may have either variable or fixed rates.
- Terms – C&I loans are usually short-term, paid off within just a few years. CRE loan terms can last for up to 20 years.
- Amounts – This will vary from loan to loan. Yet, CRE loans are usually paid out in larger amounts than C&I loans. This is due to the fact that the acquisition of commercial real estate usually costs a lot.
- Purpose – A C&I loan can be for a wide range of purposes to help a business grow, like buying inventory or equipment. CRE loans are exclusively used for buying or improving real estate.
- Collateral – When you make use of a CRE loan, you have to put up your commercial real estate as a form of collateral. For C&I loans, there are more options. For example, you can use property, stock, and other assets as collateral to support and secure the loan.
Choosing Between C&I and CRE Loans
We’ve seen the key differences between C&I and CRE loans. But what do you do if you need to choose between them? Which is the best option for your business?
Well, the simplest way to decide is by exploring your business objectives. Remember that CRE loans are purely for real estate investments. In other words, if you want to buy a new office building, a CRE loan is a good choice. For everything else, like stock, staff, or inventory, a C&I loan might be the way to go.
In the end, when it comes to obtaining a loan, it’s all about your business needs. With a reliable partner like Tarya Fintech, you can easily identify your goals and find the right financial solution to help you scale.