As the old saying goes, you have to spend money to make money. Often, when businesses are looking to expand their operations, hire new workers, purchase new equipment, or invest in inventory, they may not have sufficient capital to do so. In this case, financial solutions like C&I loans can come into play.

But what is C&I in the context of a loan or financial solution? How do these kinds of loans work and what sorts of benefits can they offer to businesses that choose to use them? In this guide, we’ll take a close look at C&I loans, covering all you need to know, from a basic C&I loan definition to an in-depth look at the pros and cons.

C&I Loan Definition

Let’s begin with a simple definition: a C&I loan, otherwise known as a commercial and industrial loan, is a specific kind of business loan that can only be paid out to businesses or corporations, not individuals. It provides the business in question with funds that may be used for various reasons.

How Do C&I Loans Work?

So, we’ve covered the answer to “What is C&I?” But now let’s take a closer look at how these loans actually work. Typically, a C&I loan will have a variable interest rate, rather than a fixed rate. This means that the level of interest you have to pay on the loan may vary over time. Note that rates depend on the bank’s general rate or other factors.

In addition, a usual requirement of taking out a C&I loan is that the borrower will need to complete financial statements on a regular basis. This is usually done quarterly but sometimes just once a year. Then they have to provide these statements to the bank. This helps to demonstrate to the bank or lender that the capital is being used correctly. In other words, it shows that the business’ finances are under control.

Common Uses of C&I Loans

So, we know what C&I lending is, but how are C&I loans actually used? Well, that will vary from business to business. A lot of different kinds of businesses can take loans for different purposes.

For example, a brand new startup business can take out a C&I loan to cover the initial costs to start the business. A more established business, on the other hand, can use of a C&I loan in order to purchase some new equipment, set up a new production line, or invest in a new location as the brand starts to expand.

The Pros and Cons of C&I Loans

So, should your business consider a C&I loan? Well, it’s important to weigh up the pros and cons before making that decision. Here are some of the main advantages and disadvantages associated with these business loans:

Pros

• Provides funds – C&I loans provide much-needed funds to businesses to help them grow and develop 
• Versatile – Unlike other kinds of business loans, you can use a C&I loan in a range of ways to grow your business 
• No need for investment – Another benefit of using a C&I loan is that it negates the need for investors. This allows your business to get funding quickly and easily

Cons

• Payments – Of course, one of the downsides of any loan is that you have to keep up with the necessary payment schedule 
• Short-term – In general, C&I loans tend to be short-term solutions and usually need to be paid within just a few years
• Variable rates – As explained earlier, C&I loans often have variable interest rates which could get quite high

C&I vs CDFI

It’s worth noting that there can sometimes be confusion between the terms C&I and CDFI. However, the two terms are very different. While C&I refers to a type of loan, CDFI stands for Community Development Financial Institution. 

But what is a community financial institution? Put simply, a community development financial institution is a financial organization that offers various financial services to people, communities, and markets, regarded as “underserved”. Examples of these institutions can include community banks and credit unions.

C&I Loan Solution for Banks

When a business needs a C&I loan, they’ll usually contact their local, trusted bank and inquire about this kind of financial solution. They’ll then proceed to submit the relevant paperwork, fill in the necessary forms, and make an official request for the loan. From there, it’s up to the bank to review the documentation, carry out underwriting, and so on. 

As a C&I loan solution for banks is essential to make this process easier and more manageable, businesses need a reliable partner to help them access funding and scale. With Tarya Fintech, you can easily tap into new opportunities and access a safe financial environment from day one.